UK Accounting Glossary
Inflation is a broad increase in prices. In practical terms, inflation means goods and services are being valued as more desirable than money. This also affects wages; periods of high inflation tend to be marked by increases in average income. Inflation can be caused by either too few goods offered for sale, or too much money in circulation. The most common measure of inflation is the consumer price index (CPI).
Prior to Bretton Woods and the elimination of the gold standard, persistent inflation was relatively rare. In the US, for example, inflation for the entire period from the Revolution through to 1914 was four per cent. The move from currencies backed by hard assets to floating currencies backed by the “full faith and credit” of governments has nearly eliminated deflation by removing impediments to printing more currency. Consequently, excessive inflation has become the primary concern of central banks.
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This glossary post was last updated: 9th February 2020.