Defining, Measuring, and Assessing Inflation

Inflation is an increase in average price levels.

Inflation is measured as a percentage rate of change in the level of prices.

Price indices are tools used to measure price changes for a specific subset of goods and services.

The costs of inflation include menu costs, shoe leather costs, loss of purchasing power, and the redistribution of wealth.

Unexpectedly high inflation tends to transfer wealth from creditors to debtors and from the rich to the poor.

Deflation is a decrease in the general price levels of goods and services.