Definition of inflation

The term "inflation" originated in the early 20th century, specifically in 1913, when it was first used in the economic context to describe an increase in the general price level of goods and services in an economy. The word was popularized during the post-World War I period when many countries experienced significant inflation as a result of the disruption caused by the war and subsequent economic turmoil. The etymology of the word "inflation" can be traced back to its Latin root, "inflatus," which means "blown up" or "inflated." The idea behind this root is that inflated prices in an economy are similar to the swelling or expansion of something that has been blown up or inflated, such as a balloon. In economics, inflation is commonly measured by the Consumer Price Index (CPI), which is an index that tracks the changes in prices of goods and services purchased by households. When inflation is low and predictable, it generally indicates a stable and healthy economy, as it enables businesses to plan and adjust prices accordingly. However, when inflation becomes excessive or persistent, it can lead to economic instability, higher borrowing costs, and decreased buying power for consumers, among other potential negative effects.