Inflation

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time. The opposite of inflation is deflation.

Inflation affects an economy in various positive and negative ways. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing the real burden of public and private debt, keeping nominal interest rates above zero so that central banks can adjust interest rates to stabilize the economy, and reducing unemployment due to nominal wage rigidity.

Asset price inflation

Asset price inflation is an economic phenomenon denoting a rise in price of assets, as opposed to ordinary goods and services. Typical assets are financial instruments such as bonds, shares, and their derivatives, as well as real estate and other capital goods. Although the values of such assets are often casually said to "inflate," this should not be confused with inflation as a defined term. A more accurate description for an increase in the value of a capital asset is appreciation.

Price inflation and assets inflation

As inflation is generally understood and perceived as the rise in price of 'ordinary' goods and services, and official and Central bank policies in most of today’s world have been expressly directed at minimizing 'price inflation', assets inflation has not been the object of much attention or concern. An example of this is the housing market, which concerns almost every individual household, where house prices have over the past decade consistently risen by or at least near a two digit percentage, far above that of the consumer price index.

Inflation (cosmology)

In physical cosmology, cosmic inflation, cosmological inflation, or just inflation is a theory of exponential expansion of space in the early universe. The inflationary epoch lasted from 10⁻³⁶ seconds after the Big Bang to sometime between 10⁻³³ and 10⁻³² seconds. Following the inflationary period, the Universe continues to expand, but at a less rapid rate.

Inflation theory was developed in the early 1980s. It explains the origin of the large-scale structure of the cosmos. Quantum fluctuations in the microscopic inflationary region, magnified to cosmic size, become the seeds for the growth of structure in the Universe (see galaxy formation and evolution and structure formation). Many physicists also believe that inflation explains why the Universe appears to be the same in all directions (isotropic), why the cosmic microwave background radiation is distributed evenly, why the Universe is flat, and why no magnetic monopoles have been observed.

While the detailed particle physics mechanism responsible for inflation is not known, the basic picture makes a number of predictions that have been confirmed by observation. The hypothetical field thought to be responsible for inflation is called the inflaton.