Ination

This article is about a rise in the general price level. For etary policy through the setting of interest rates, through
the expansion of the early universe, see Ination (cos- open market operations, and through the setting of bankmology). For other uses, see Ination (disambiguation). ing reserve requirements.[14]
In economics, ination is a sustained increase in the
general price level of goods and services in an economy
over a period of time.[1] When the general price level
rises, each unit of currency buys fewer goods and services. Consequently, ination reects 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.[2][3] A chief measure of price ination is
the ination rate, the annualized percentage change in a
general price index (normally the consumer price index)
over time.[4] The opposite of ination is deation.

1 History
U.S. Historical Inflation Rate

Annual Inflation Rate

40%
30%
20%
10%
0%
-10%
-20%

Ination aects an economy in various ways, both pos1650

1700
1750
1800
1850
1900
1950
2000
itive and negative. Negative eects of ination include
an increase in the opportunity cost of holding money, Annual ination rates in the United States from 1666 to 2004.
uncertainty over future ination which may discourage investment and savings, and if ination were rapid
enough, shortages of goods as consumers begin hoarding
out of concern that prices will increase in the future. Positive eects include ensuring that central banks can adjust
real interest rates (to mitigate recessions),[5] and encourInation rate (%)
Below 0 (Deation)
aging investment in non-monetary capital projects.
0-2
2-4
4-7
7 - 10
10 - 15
15 - 30
30 - 45
No data

Economists generally believe that high rates of ination

and hyperination are caused by an excessive growth of
the money supply.[6] However, money supply growth does
not necessarily cause ination. Some economists maintain that under the conditions of a liquidity trap, large
monetary injections are like pushing on a string.[7][8]
Views on which factors determine low to moderate rates
of ination are more varied. Low or moderate ination may be attributed to uctuations in real demand
for goods and services, or changes in available supplies
such as during scarcities.[9] However, the consensus view
is that a long sustained period of ination is caused by
money supply growing faster than the rate of economic
growth.[10][11]

Data Year: 2013

Ination rates around the world in 2013, per International Monetary Fund.

Increases in quantity of the money or in the overall money

supply (or debasement of the means of exchange) have
occurred in many dierent societies throughout history,
changing with dierent forms of money used.[15][16] For
instance, when gold was used as currency, the government could collect gold coins, melt them down, mix them
with other metals such as silver, copper or lead, and reissue them at the same nominal value. By diluting the gold
with other metals, the government could issue more coins
without also needing to increase the amount of gold used
to make them. When the cost of each coin is lowered
in this way, the government prots from an increase in
seigniorage.[17] This practice would increase the money
supply but at the same time the relative value of each coin
would be lowered. As the relative value of the coins becomes lower, consumers would need to give more coins
in exchange for the same goods and services as before.

Today, most economists favor a low and steady rate of

ination.[12] Low (as opposed to zero or negative) ination reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents
monetary policy from stabilizing the economy.[13] The
task of keeping the rate of ination low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control mon-

RELATED DEFINITIONS

These goods and services would experience a price in- in the Weimar Republic of Germany is a notable examcrease as the value of each coin is reduced.[18]
ple.
Song Dynasty China introduced the practice of printing
paper money in order to create at currency.[19] During
the Mongol Yuan Dynasty, the government spent a great
deal of money ghting costly wars, and reacted by printing more, leading to ination.[20] The problem of ination became so severe that the people stopped using paper
money, which they saw as worthless paper.[21] Fearing
the ination that plagued the Yuan dynasty, the Ming Dynasty initially rejected the use of paper money, using only
copper coins. The dynasty did not issue paper currency
until 1375.[21]

2 Related denitions

The term ination originally referred to increases in the

amount of money in circulation,[29] and some economists
still use the word in this way. However, most economists
today use the term ination to refer to a rise in the price
level. An increase in the money supply may be called
monetary ination, to distinguish it from rising prices,
which may also for clarity be called price ination.[30]
Historically, infusions of gold or silver into an economy
Economists generally agree that in the long run, ination
also led to ination. From the second half of the 15th
is caused by increases in the money supply.[31]
century to the rst half of the 17th, Western Europe experienced a major inationary cycle referred to as the "price It is important to distinguish the word ination conceprevolution",[22][23] with prices on average rising perhaps tually, since it refers only to the general trend, not specic
sixfold over 150 years. This was largely caused by the one. For example, if people buy much more cucumbers
sudden inux of gold and silver from the New World than tomatoes, which consequently become cheaper, it
into Habsburg Spain.[24] The silver spread throughout a does not correspond to the ination - it is a simple shift of
previously cash-starved Europe and caused widespread tastes. It was easier to observe when currency was linked
ination.[25][26] Demographic factors also contributed to with the gold price. If new gold deposits were found, the
upward pressure on prices, with European population prices on gold would become lower and prices - higher.
[32]
growth after depopulation caused by the Black Death And vice versa.
pandemic.
Other economic concepts related to ination include:
By the nineteenth century, economists categorized three
separate factors that cause a rise or fall in the price of
goods: a change in the value or production costs of the
good, a change in the price of money which then was usually a uctuation in the commodity price of the metallic content in the currency, and currency depreciation resulting from an increased supply of currency relative to
the quantity of redeemable metal backing the currency.
Following the proliferation of private banknote currency
printed during the American Civil War, the term ination started to appear as a direct reference to the currency depreciation that occurred as the quantity of redeemable banknotes outstripped the quantity of metal
available for their redemption. At that time, the term ination referred to the devaluation of the currency, and not
to a rise in the price of goods.[27]
This relationship between the over-supply of banknotes
and a resulting depreciation in their value was noted by
earlier classical economists such as David Hume and
David Ricardo, who would go on to examine and debate
what eect a currency devaluation (later termed monetary
ination) has on the price of goods (later termed price ination, and eventually just ination).[28]
The adoption of at currency by many countries, from the
18th century onwards, made much larger variations in the
supply of money possible. Since then, huge increases in
the supply of paper money have taken place in a number
of countries, producing hyperinations episodes of extreme ination rates much higher than those observed in
earlier periods of commodity money. The hyperination

deation a fall in the general price level; disination a

decrease in the rate of ination; hyperination an outof-control inationary spiral; stagation a combination
of ination, slow economic growth and high unemployment; and reation an attempt to raise the general level
of prices to counteract deationary pressures.
Since there are many possible measures of the price level,
there are many possible measures of price ination. Most
frequently, the term ination refers to a rise in a broad
price index representing the overall price level for goods
and services in the economy. The Consumer Price Index (CPI), the Personal Consumption Expenditures Price
Index (PCEPI) and the GDP deator are some examples of broad price indices. However, ination may
also be used to describe a rising price level within a narrower set of assets, goods or services within the economy, such as commodities (including food, fuel, metals), tangible assets (such as real estate), nancial assets
(such as stocks, bonds), services (such as entertainment
and health care), or labor. Although the values of capital assets are often casually said to inate, this should
not be confused with ination as a dened term; a more
accurate description for an increase in the value of a capital asset is appreciation. The Reuters-CRB Index (CCI),
the Producer Price Index, and Employment Cost Index
(ECI) are examples of narrow price indices used to measure price ination in particular sectors of the economy.
Core ination is a measure of ination for a subset of consumer prices that excludes food and energy prices, which
rise and fall more than other prices in the short term. The
Federal Reserve Board pays particular attention to the

3
core ination rate to get a better estimate of long-term
future ination trends overall.[33]

Measures

See also: Consumer price index

The ination rate is widely calculated by calculating

Commodity price indices, which measure the price

of a selection of commodities. In the present commodity price indices are weighted by the relative importance of the components to the all in cost of an
employee.
Core price indices: because food and oil prices can
change quickly due to changes in supply and demand
conditions in the food and oil markets, it can be difcult to detect the long run trend in price levels when
those prices are included. Therefore most statistical
agencies also report a measure of 'core ination',
which removes the most volatile components (such
as food and oil) from a broad price index like the
CPI. Because core ination is less aected by short
run supply and demand conditions in specic markets, central banks rely on it to better measure the
inationary impact of current monetary policy.
Other common measures of ination are:

CPI ination (year-on-year) in the United States from 1914 to

2010.

GDP deator is a measure of the price of all the

goods and services included in gross domestic product (GDP). The US Commerce Department publishes a deator series for US GDP, dened as its
nominal GDP measure divided by its real GDP measure.

the movement or change in a price index, usually the

consumer price index.[34] The ination rate is the percentage rate of change of a price index over time. The Retail
Prices Index is also a measure of ination that is commonly used in the United Kingdom. It is broader than the GDP Def lator =
CPI and contains a larger basket of goods and services.
To illustrate the method of calculation, in January 2007,
the U.S. Consumer Price Index was 202.416, and in January 2008 it was 211.080. The formula for calculating the
annual percentage
( rate ination in
) the CPI over the course
of the year is: 211.080202.416
100% = 4.28% The
202.416
resulting ination rate for the CPI in this one year period
is 4.28%, meaning the general level of prices for typical U.S. consumers rose by approximately four percent
in 2007.[35]
Other widely used price indices for calculating price ination include the following:
Producer price indices (PPIs) which measures average changes in prices received by domestic producers for their output. This diers from the CPI
in that price subsidization, prots, and taxes may
cause the amount received by the producer to dier
from what the consumer paid. There is also typically a delay between an increase in the PPI and any
eventual increase in the CPI. Producer price index
measures the pressure being put on producers by the
costs of their raw materials. This could be passed
on to consumers, or it could be absorbed by profits, or oset by increasing productivity. In India and
the United States, an earlier version of the PPI was
called the Wholesale Price Index.

N ominalGDP
RealGDP

Regional ination The Bureau of Labor Statistics

breaks down CPI-U calculations down to dierent
regions of the US.
Historical ination Before collecting consistent
econometric data became standard for governments,
and for the purpose of comparing absolute, rather
than relative standards of living, various economists
have calculated imputed ination gures. Most ination data before the early 20th century is imputed
based on the known costs of goods, rather than compiled at the time. It is also used to adjust for the differences in real standard of living for the presence
of technology.
Asset price ination is an undue increase in the
prices of real or nancial assets, such as stock (equity) and real estate. While there is no widely accepted index of this type, some central bankers have
suggested that it would be better to aim at stabilizing
a wider general price level ination measure that includes some asset prices, instead of stabilizing CPI
or core ination only. The reason is that by raising
interest rates when stock prices or real estate prices
rise, and lowering them when these asset prices fall,
central banks might be more successful in avoiding
bubbles and crashes in asset prices.

3.1

Issues in measuring

Measuring ination in an economy requires objective

means of dierentiating changes in nominal prices on
a common set of goods and services, and distinguishing
them from those price shifts resulting from changes in
value such as volume, quality, or performance. For example, if the price of a 10 oz. can of corn changes from
$0.90 to $1.00 over the course of a year, with no change
in quality, then this price dierence represents ination.
This single price change would not, however, represent
general ination in an overall economy. To measure overall ination, the price change of a large basket of representative goods and services is measured. This is the
purpose of a price index, which is the combined price of
a basket of many goods and services. The combined
price is the sum of the weighted prices of items in the
basket. A weighted price is calculated by multiplying
the unit price of an item by the number of that item the
average consumer purchases. Weighted pricing is a necessary means to measuring the impact of individual unit
price changes on the economys overall ination. The
Consumer Price Index, for example, uses data collected
by surveying households to determine what proportion of
the typical consumers overall spending is spent on specic goods and services, and weights the average prices of
those items accordingly. Those weighted average prices
are combined to calculate the overall price. To better relate price changes over time, indexes typically choose a
base year price and assign it a value of 100. Index prices
in subsequent years are then expressed in relation to the
base year price.[14] While comparing ination measures
for various periods one has to take into consideration the
base eect as well.
Ination measures are often modied over time, either for
the relative weight of goods in the basket, or in the way in
which goods and services from the present are compared
with goods and services from the past. Over time, adjustments are made to the type of goods and services selected in order to reect changes in the sorts of goods and
services purchased by 'typical consumers. New products
may be introduced, older products disappear, the quality of existing products may change, and consumer preferences can shift. Both the sorts of goods and services
which are included in the basket and the weighted price
used in ination measures will be changed over time in
order to keep pace with the changing marketplace.
Ination numbers are often seasonally adjusted in order
to dierentiate expected cyclical cost shifts. For example,
home heating costs are expected to rise in colder months,
and seasonal adjustments are often used when measuring
for ination to compensate for cyclical spikes in energy
or fuel demand. Ination numbers may be averaged or
otherwise subjected to statistical techniques in order to
remove statistical noise and volatility of individual prices.
When looking at ination, economic institutions may focus only on certain kinds of prices, or special indices, such

EFFECTS

as the core ination index which is used by central banks

to formulate monetary policy.
Most ination indices are calculated from weighted averages of selected price changes. This necessarily introduces distortion, and can lead to legitimate disputes about
what the true ination rate is. This problem can be overcome by including all available price changes in the calculation, and then choosing the median value.[36] In some
other cases, governments may intentionally report false
ination rates; for instance, the government of Argentina
has been criticised for manipulating economic data, such
as ination and GDP gures, for political gain and to reduce payments on its ination-indexed debt.[37][38]

4 Eects
4.1 General
An increase in the general level of prices implies a decrease in the purchasing power of the currency. That
is, when the general level of prices rise, each monetary
unit buys fewer goods and services. The eect of ination is not distributed evenly in the economy, and as a
consequence there are hidden costs to some and benets
to others from this decrease in the purchasing power of
money. For example, with ination, those segments in society which own physical assets, such as property, stock
etc., benet from the price/value of their holdings going
up, when those who seek to acquire them will need to
pay more for them. Their ability to do so will depend on
the degree to which their income is xed. For example,
increases in payments to workers and pensioners often
lag behind ination, and for some people income is xed.
Also, individuals or institutions with cash assets will experience a decline in the purchasing power of the cash.
Increases in the price level (ination) erode the real value
of money (the functional currency) and other items with
an underlying monetary nature.
Debtors who have debts with a xed nominal rate of interest will see a reduction in the real interest rate as
the ination rate rises. The real interest on a loan is the
nominal rate minus the ination rate. The formula R =
N-I approximates the correct answer as long as both the
nominal interest rate and the ination rate are small. The
correct equation is r = n/i where r, n and i are expressed
as ratios (e.g. 1.2 for +20%, 0.8 for 20%). As an example, when the ination rate is 3%, a loan with a nominal interest rate of 5% would have a real interest rate of
approximately 2% (in fact, its 1.94%). Any unexpected
increase in the ination rate would decrease the real interest rate. Banks and other lenders adjust for this ination
risk either by including an ination risk premium to xed
interest rate loans, or lending at an adjustable rate.

4.3

4.2

Positive

Negative

5
Hyperination If ination becomes too high, it can
cause people to severely curtail their use of the currency, leading to an acceleration in the ination rate.
High and accelerating ination grossly interferes
with the normal workings of the economy, hurting
its ability to supply goods. Hyperination can lead
to the abandonment of the use of the countrys currency (for example as in North Korea) leading to the
adoption of an external currency (dollarization).[44]

High or unpredictable ination rates are regarded as

harmful to an overall economy. They add ineciencies
in the market, and make it dicult for companies to budget or plan long-term. Ination can act as a drag on productivity as companies are forced to shift resources away
from products and services in order to focus on prot
and losses from currency ination.[14] Uncertainty about
the future purchasing power of money discourages investment and saving.[39] Ination can also impose hidden tax Allocative eciency A change in the supply or demand
increases. For instance, inated earnings push taxpayers
for a good will normally cause its relative price to
into higher income tax rates unless the tax brackets are
change, signaling the buyers and sellers that they
indexed to ination.
should re-allocate resources in response to the new
market conditions. But when prices are constantly
With high ination, purchasing power is redistributed
changing due to ination, price changes due to genfrom those on xed nominal incomes, such as some penuine relative price signals are dicult to distinguish
sioners whose pensions are not indexed to the price level,
from price changes due to general ination, so agents
towards those with variable incomes whose earnings may
are slow to respond to them. The result is a loss of
better keep pace with the ination.[14] This redistribuallocative eciency.
tion of purchasing power will also occur between international trading partners. Where xed exchange rates are
imposed, higher ination in one economy than another Shoe leather cost High ination increases the opportuwill cause the rst economys exports to become more
nity cost of holding cash balances and can induce
expensive and aect the balance of trade. There can also
people to hold a greater portion of their assets in inbe negative impacts to trade from an increased instabilterest paying accounts. However, since cash is still
ity in currency exchange prices caused by unpredictable
needed in order to carry out transactions this means
ination.
that more trips to the bank are necessary in order

to make withdrawals, proverbially wearing out the

shoe leather with each trip.
Cost-push ination High ination can prompt employees to demand rapid wage increases, to keep up with
consumer prices. In the cost-push theory of ina- Menu costs With high ination, rms must change their
tion, rising wages in turn can help fuel ination.
prices often in order to keep up with economy-wide
In the case of collective bargaining, wage growth
changes. But often changing prices is itself a costly
will be set as a function of inationary expectations,
activity whether explicitly, as with the need to print
which will be higher when ination is high. This can
new menus, or implicitly, as with the extra time and
cause a wage spiral.[40] In a sense, ination begets
eort needed to change prices constantly.
further inationary expectations, which beget further ination.
Business cycles According to the Austrian Business Cycle Theory, ination sets o the business cycle. AusHoarding People buy durable and/or non-perishable
trian economists hold this to be the most damaging
commodities and other goods as stores of wealth,
eect of ination. According to Austrian theory,
to avoid the losses expected from the declining purarticially low interest rates and the associated inchasing power of money, creating shortages of the
crease in the money supply lead to reckless, specuhoarded goods.
lative borrowing, resulting in clusters of malinvestments, which eventually have to be liquidated as they
become unsustainable.[45]
Social unrest and revolts Ination can lead to massive
demonstrations and revolutions. For example, ination and in particular food ination is considered
as one of the main reasons that caused the 2010 4.3 Positive
2011 Tunisian revolution[41] and the 2011 Egyptian revolution,[42] according to many observers in- Labour-market adjustments Nominal wages are slow
cluding Robert Zoellick,[43] president of the World
to adjust downwards. This can lead to prolonged
Bank. Tunisian president Zine El Abidine Ben Ali
disequilibrium and high unemployment in the labor
was ousted, Egyptian President Hosni Mubarak was
market. Since ination allows real wages to fall even
also ousted after only 18 days of demonstrations,
if nominal wages are kept constant, moderate inand protests soon spread in many countries of North
ation enables labor markets to reach equilibrium
Africa and Middle East.
faster.[46]

6
Room to maneuver The primary tools for controlling
the money supply are the ability to set the discount
rate, the rate at which banks can borrow from the
central bank, and open market operations, which are
the central banks interventions into the bonds market with the aim of aecting the nominal interest
rate. If an economy nds itself in a recession with already low, or even zero, nominal interest rates, then
the bank cannot cut these rates further (since negative nominal interest rates are impossible) in order
to stimulate the economy this situation is known as
a liquidity trap. A moderate level of ination tends
to ensure that nominal interest rates stay suciently
above zero so that if the need arises the bank can cut
the nominal interest rate.
MundellTobin eect The Nobel laureate Robert
Mundell noted that moderate ination would induce
savers to substitute lending for some money holding
as a means to nance future spending. That substitution would cause market clearing real interest
rates to fall.[47] The lower real rate of interest would
induce more borrowing to nance investment. In a
similar vein, Nobel laureate James Tobin noted that
such ination would cause businesses to substitute
investment in physical capital (plant, equipment,
and inventories) for money balances in their asset
portfolios. That substitution would mean choosing
the making of investments with lower rates of real
return. (The rates of return are lower because the
investments with higher rates of return were already
being made before.)[48] The two related eects
are known as the MundellTobin eect. Unless
the economy is already overinvesting according
to models of economic growth theory, that extra
investment resulting from the eect would be seen
as positive.

CAUSES

ond eect noted by Tsaing is that when savers have

substituted money holding for lending on nancial
markets, the role of those markets in channeling savings into investment is undermined. With nominal
interest rates driven to zero, or near zero, from the
competition with a high return money asset, there
would be no price mechanism in whatever is left of
those markets. With nancial markets eectively
euthanized, the remaining goods and physical asset
prices would move in perverse directions. For example, an increased desire to save could not push
interest rates further down (and thereby stimulate investment) but would instead cause additional money
hoarding, driving consumer prices further down and
making investment in consumer goods production
thereby less attractive. Moderate ination, once
its expectation is incorporated into nominal interest rates, would give those interest rates room to go
both up and down in response to shifting investment
opportunities, or savers preferences, and thus allow
nancial markets to function in a more normal fashion.

5 Causes

Historically, a great deal of economic literature was concerned with the question of what causes ination and what
eect it has. There were dierent schools of thought as
to the causes of ination. Most can be divided into two
broad areas: quality theories of ination and quantity theories of ination. The quality theory of ination rests on
the expectation of a seller accepting currency to be able
to exchange that currency at a later time for goods that are
desirable as a buyer. The quantity theory of ination rests
on the quantity equation of money that relates the money
supply, its velocity, and the nominal value of exchanges.
Instability with deation Economist S.C. Tsaing noted
Adam Smith and David Hume proposed a quantity theory
that once substantial deation is expected, two imof ination for money, and a quality theory of ination for
portant eects will appear; both a result of money
production.
holding substituting for lending as a vehicle for
saving.[49] The rst was that continually falling Currently, the quantity theory of money is widely acprices and the resulting incentive to hoard money cepted as an accurate model of ination in the long
will cause instability resulting from the likely in- run. Consequently, there is now broad agreement among
creasing fear, while money hoards grow in value, economists that in the long run, the ination rate is esthat the value of those hoards are at risk, as peo- sentially dependent on the growth rate of money supple realize that a movement to trade those money ply relative to the growth of the economy. However, in
hoards for real goods and assets will quickly drive the short and medium term ination may be aected by
those prices up. Any movement to spend those supply and demand pressures in the economy, and inuhoards once started would become a tremendous enced by the relative elasticity of wages, prices and inter[51]
The question of whether the short-term efavalanche, which could rampage for a long time be- est rates.
fore it would spend itself.[50] Thus, a regime of fects last long enough to be important is the central topic
long-term deation is likely to be interrupted by pe- of debate between monetarist and Keynesian economists.
riodic spikes of rapid ination and consequent real In monetarism prices and wages adjust quickly enough to
economic disruptions. Moderate and stable ination make other factors merely marginal behavior on a general
would avoid such a seesawing of price movements. trend-line. In the Keynesian view, prices and wages adjust at dierent rates, and these dierences have enough
Financial market ineciency with deation The sec- eects on real output to be long term in the view of

5.1

Keynesian view

people in an economy.

major role in determining moderate levels of ination, although there are dierences of opinion on how important
it is. For example, Monetarist economists believe that the
5.1 Keynesian view
link is very strong; Keynesian economists, by contrast,
typically emphasize the role of aggregate demand in the
Keynesian economics proposes that changes in money economy rather than the money supply in determining insupply do not directly aect prices, and that visible ina- ation. That is, for Keynesians, the money supply is only
tion is the result of pressures in the economy expressing one determinant of aggregate demand.
themselves in prices.
Some Keynesian economists also disagree with the noThere are three major types of ination, as part of what tion that central banks fully control the money supply,
Robert J. Gordon calls the "triangle model":[52]
arguing that central banks have little control, since the
money supply adapts to the demand for bank credit is Demand-pull ination is caused by increases in ag- sued by commercial banks. This is known as the theory
gregate demand due to increased private and gov- of endogenous money, and has been advocated strongly
ernment spending, etc. Demand ination encour- by post-Keynesians as far back as the 1960s. It has today
ages economic growth since the excess demand and become a central focus of Taylor rule advocates. This pofavourable market conditions will stimulate invest- sition is not universally accepted banks create money
by making loans, but the aggregate volume of these loans
ment and expansion.
diminishes as real interest rates increase. Thus, central
Cost-push ination, also called supply shock ina- banks can inuence the money supply by making money
tion, is caused by a drop in aggregate supply (poten- cheaper or more expensive, thus increasing or decreasing
tial output). This may be due to natural disasters, or its production.
increased prices of inputs. For example, a sudden
decrease in the supply of oil, leading to increased A fundamental concept in ination analysis is the relaoil prices, can cause cost-push ination. Produc- tionship between ination and unemployment, called the
ers for whom oil is a part of their costs could then Phillips curve. This model suggests that there is a tradepass this on to consumers in the form of increased o between price stability and employment. Therefore,
prices. Another example stems from unexpectedly some level of ination could be considered desirable in
high Insured losses, either legitimate (catastrophes) order to minimize unemployment. The Phillips curve
or fraudulent (which might be particularly prevalent model described the U.S. experience well in the 1960s
but failed to describe the combination of rising inain times of recession).
tion and economic stagnation (sometimes referred to as
Built-in ination is induced by adaptive expecta- stagation) experienced in the 1970s.
tions, and is often linked to the "price/wage spiral". Thus, modern macroeconomics describes ination using
It involves workers trying to keep their wages up a Phillips curve that shifts (so the trade-o between inwith prices (above the rate of ination), and rms ation and unemployment changes) because of such matpassing these higher labor costs on to their cus- ters as supply shocks and ination becoming built into
tomers as higher prices, leading to a 'vicious circle'. the normal workings of the economy. The former refers
Built-in ination reects events in the past, and so to such events as the oil shocks of the 1970s, while the
might be seen as hangover ination.
latter refers to the price/wage spiral and inationary exDemand-pull theory states that ination accelerates when
aggregate demand increases beyond the ability of the
economy to produce (its potential output). Hence,
any factor that increases aggregate demand can cause
ination.[53] However, in the long run, aggregate demand
can be held above productive capacity only by increasing
the quantity of money in circulation faster than the real
growth rate of the economy. Another (although much less
common) cause can be a rapid decline in the demand for
money, as happened in Europe during the Black Death, or
in the Japanese occupied territories just before the defeat
of Japan in 1945.
The eect of money on ination is most obvious when
governments nance spending in a crisis, such as a civil
war, by printing money excessively. This sometimes leads
to hyperination, a condition where prices can double in
a month or less. Money supply is also thought to play a

pectations implying that the economy normally suers

from ination. Thus, the Phillips curve represents only
the demand-pull component of the triangle model.
Another concept of note is the potential output (sometimes called the natural gross domestic product), a level
of GDP, where the economy is at its optimal level of production given institutional and natural constraints. (This
level of output corresponds to the Non-Accelerating Ination Rate of Unemployment, NAIRU, or the natural
rate of unemployment or the full-employment unemployment rate.) If GDP exceeds its potential (and unemployment is below the NAIRU), the theory says that ination
will accelerate as suppliers increase their prices and builtin ination worsens. If GDP falls below its potential level
(and unemployment is above the NAIRU), ination will
decelerate as suppliers attempt to ll excess capacity, cutting prices and undermining built-in ination.[54]

However, one problem with this theory for policy-making

purposes is that the exact level of potential output (and of
the NAIRU) is generally unknown and tends to change
over time. Ination also seems to act in an asymmetric way, rising more quickly than it falls. Worse, it can
change because of policy: for example, high unemployment under British Prime Minister Margaret Thatcher
might have led to a rise in the NAIRU (and a fall in potential) because many of the unemployed found themselves
as structurally unemployed (also see unemployment), unable to nd jobs that t their skills. A rise in structural
unemployment implies that a smaller percentage of the
labor force can nd jobs at the NAIRU, where the economy avoids crossing the threshold into the realm of accelerating ination.
5.1.1

Unemployment

A connection between ination and unemployment has

been drawn since the emergence of large scale unemployment in the 19th century, and connections continue to be
drawn today. However, the unemployment rate generally only aects ination in the short-term but not the
long-term.[55] In the long term, the velocity of money
supply measures such as the MZM (Money Zero Maturity, representing cash and equivalent demand deposits) velocity is far more predictive of ination than low
unemployment.[56]

CAUSES

grows or shrinks. They consider scal policy, or government spending and taxation, as ineective in controlling
ination.[57] The monetarist economist Milton Friedman
famously stated, Ination is always and everywhere a
monetary phenomenon. [58]
Monetarists assert that the empirical study of monetary
history shows that ination has always been a monetary
phenomenon. The quantity theory of money, simply
stated, says that any change in the amount of money in
a system will change the price level. This theory begins
with the equation of exchange:

MV = PQ
where
M is the nominal quantity of money.
V is the velocity of money in nal expenditures;
P is the general price level;
Q is an index of the real value of nal expenditures;

In this formula, the general price level is related to the

level of real economic activity (Q), the quantity of money
(M) and the velocity of money (V). The formula is an
identity because the velocity of money (V) is dened to
be the ratio of nal nominal expenditure ( P Q ) to the
In Marxian economics, the unemployed serve as a reserve quantity of money (M).
army of labor, which restrain wage ination. In the
20th century, similar concepts in Keynesian economics Monetarists assume that the velocity of money is unafinclude the NAIRU (Non-Accelerating Ination Rate of fected by monetary policy (at least in the long run), and
the real value of output is determined in the long run by
Unemployment) and the Phillips curve.
the productive capacity of the economy. Under these assumptions, the primary driver of the change in the general price level is changes in the quantity of money. With
5.2 Monetarist view
exogenous velocity (that is, velocity being determined externally and not being inuenced by monetary policy),
the money supply determines the value of nominal output (which equals nal expenditure) in the short run. In
practice, velocity is not exogenous in the short run, and
so the formula does not necessarily imply a stable shortrun relationship between the money supply and nominal
output. However, in the long run, changes in velocity are
assumed to be determined by the evolution of the payments mechanism. If velocity is relatively unaected by
monetary policy, the long-run rate of increase in prices
(the ination rate) is equal to the long-run growth rate
of the money supply plus the exogenous long-run rate of
velocity growth minus the long run growth rate of real
output.[10]
Ination and the growth of money supply (M2).

For more details on this topic, see Monetarism.

5.3 Rational expectations theory

For more details on this topic, see Rational expectations

Monetarists believe the most signicant factor inuenc- theory.
ing ination or deation is how fast the money supply

9
Rational expectations theory holds that economic actors
look rationally into the future when trying to maximize
their well-being, and do not respond solely to immediate
opportunity costs and pressures. In this view, while generally grounded in monetarism, future expectations and
strategies are important for ination as well.
A core assertion of rational expectations theory is that actors will seek to head o central-bank decisions by acting in ways that fulll predictions of higher ination. This
means that central banks must establish their credibility in
ghting ination, or economic actors will make bets that
the central bank will expand the money supply rapidly
enough to prevent recession, even at the expense of exacerbating ination. Thus, if a central bank has a reputation
as being soft on ination, when it announces a new policy of ghting ination with restrictive monetary growth
economic agents will not believe that the policy will persist; their inationary expectations will remain high, and
so will ination. On the other hand, if the central bank
has a reputation of being tough on ination, then such
a policy announcement will be believed and inationary
expectations will come down rapidly, thus allowing ination itself to come down rapidly with minimal economic
disruption.

5.4

portant in the 19th century in debates between Banking

and Currency schools of monetary soundness, and in
the formation of the Federal Reserve. In the wake of the
collapse of the international gold standard post 1913, and
the move towards decit nancing of government, RBD
has remained a minor topic, primarily of interest in limited contexts, such as currency boards. It is generally held
in ill repute today, with Frederic Mishkin, a governor of
the Federal Reserve going so far as to say it had been
completely discredited.
The debate between currency, or quantity theory, and
the banking schools during the 19th century pregures
current questions about the credibility of money in the
present. In the 19th century the banking schools had
greater inuence in policy in the United States and Great
Britain, while the currency schools had more inuence
on the continent, that is in non-British countries, particularly in the Latin Monetary Union and the earlier Scandinavia monetary union.

6 Controlling ination
A variety of methods and policies have been proposed
and used to control ination.

Heterodox views

There are also various heterodox theories that downplay 6.1

or reject the views of the Keynesians and monetarists.

Monetary policy
Federal Funds Rate (effective)
July 1954 to December 2008

5.4.1

Austrian view

20
18
16

Percent

See also: Austrian School and Monetary ination

14
12
The Austrian School stresses that ination is not uniform
10
over all assets, goods, and services. Ination depends on
8
dierences in markets and on where newly created money
6
4
and credit enter the economy. Ludwig von Mises said
2
that ination should refer to an increase in the quantity of
0
1952 1958 1964 1970 1976 1982 1988 1994 2000 2006 2012
money that is not oset by a corresponding increase in the
Date
need for money, and that price ination will necessarily
[59][60]
follow.
The U.S. eective federal funds rate charted over fty years.
5.4.2

Real bills doctrine

Main article: Real bills doctrine

Within the context of a xed specie basis for money, one
important controversy was between the quantity theory
of money and the real bills doctrine (RBD). Within this
context, quantity theory applies to the level of fractional
reserve accounting allowed against specie, generally gold,
held by a bank. Currency and banking schools of economics argue the RBD, that banks should also be able
to issue currency against bills of trading, which is real
bills that they buy from merchants. This theory was im-

Main article: Monetary policy

Governments and central banks primarily use monetary
policy to control ination. Central banks such as the U.S.
Federal Reserve increase the interest rate, slow or stop
the growth of the money supply, and reduce the money
supply. Some banks have a symmetrical ination target
while others only control ination when it rises above a
target, whether express or implied.
Most central banks are tasked with keeping their interbank lending rates at low levels, normally to a target annual rate of about 2% to 3%, and within a targeted annual
ination range of about 2% to 6%. Central bankers target

10

6 CONTROLLING INFLATION

a low ination rate because they believe deation endan- 6.3 Gold standard
gers the economy.
Higher interest rates reduce the amount of money be- Main article: Gold standard
cause fewer people seek loans, and loans are usually made The gold standard is a monetary system in which a rewith new money. When banks make loans, they usually
rst create new money, then lend it. A central bank usually creates money lent to a national government. Therefore, when a person pays back a loan, the bank destroys
the money and the quantity of money falls. In the early
1980s, when the federal funds rate exceeded 15 percent,
the quantity of Federal Reserve dollars fell 8.1 percent,
from $8.6 trillion down to $7.9 trillion.
Monetarists emphasize a steady growth rate of money
and use monetary policy to control ination by increasing
interest rates and slowing the rise in the money supply.
Keynesians emphasize reducing aggregate demand during economic expansions and increasing demand during
recessions to keep ination stable. Control of aggregate Two 20 kr gold coins from the Scandinavian Monetary Union, a
demand can be achieved using both monetary policy and historical example of an international gold standard.
scal policy (increased taxation or reduced government
spending to reduce demand).
gions common media of exchange are paper notes that
are normally freely convertible into pre-set, xed quantities of gold. The standard species how the gold backing
would be implemented, including the amount of specie
per currency unit. The currency itself has no innate value,
but is accepted by traders because it can be redeemed for
the equivalent specie. A U.S. silver certicate, for exam6.2 Fixed exchange rates
ple, could be redeemed for an actual piece of silver.
Main article: Fixed exchange rate
Under a xed exchange rate currency regime, a countrys
currency is tied in value to another single currency or to a
basket of other currencies (or sometimes to another measure of value, such as gold). A xed exchange rate is usually used to stabilize the value of a currency, vis-a-vis the
currency it is pegged to. It can also be used as a means
to control ination. However, as the value of the reference currency rises and falls, so does the currency pegged
to it. This essentially means that the ination rate in the
xed exchange rate country is determined by the ination
rate of the country the currency is pegged to. In addition,
a xed exchange rate prevents a government from using
domestic monetary policy in order to achieve macroeconomic stability.
Under the Bretton Woods agreement, most countries
around the world had currencies that were xed to the US
dollar. This limited ination in those countries, but also
exposed them to the danger of speculative attacks. After
the Bretton Woods agreement broke down in the early
1970s, countries gradually turned to oating exchange
rates. However, in the later part of the 20th century, some
countries reverted to a xed exchange rate as part of an
attempt to control ination. This policy of using a xed
exchange rate to control ination was used in many countries in South America in the later part of the 20th century
(e.g. Argentina (19912002), Bolivia, Brazil, and Chile).

The gold standard was partially abandoned via the international adoption of the Bretton Woods System. Under
this system all other major currencies were tied at xed
rates to the dollar, which itself was tied to gold at the rate
of $35 per ounce. The Bretton Woods system broke down
in 1971, causing most countries to switch to at money
money backed only by the laws of the country.
Under a gold standard, the long term rate of ination (or
deation) would be determined by the growth rate of the
supply of gold relative to total output.[61] Critics argue
that this will cause arbitrary uctuations in the ination
rate, and that monetary policy would essentially be determined by gold mining.[62][63]

6.4 Wage and price controls

Main article: Incomes policy
Another method attempted in the past have been wage
and price controls (incomes policies). Wage and price
controls have been successful in wartime environments
in combination with rationing. However, their use in
other contexts is far more mixed. Notable failures of their
use include the 1972 imposition of wage and price controls by Richard Nixon. More successful examples include the Prices and Incomes Accord in Australia and the
Wassenaar Agreement in the Netherlands.

11
In general, wage and price controls are regarded as a
temporary and exceptional measure, only eective when
coupled with policies designed to reduce the underlying causes of ination during the wage and price control regime, for example, winning the war being fought.
They often have perverse eects, due to the distorted signals they send to the market. Articially low prices often
cause rationing and shortages and discourage future investment, resulting in yet further shortages. The usual
economic analysis is that any product or service that is
under-priced is overconsumed. For example, if the ocial price of bread is too low, there will be too little bread
at ocial prices, and too little investment in bread making
by the market to satisfy future needs, thereby exacerbating the problem in the long term.
Temporary controls may complement a recession as a way
to ght ination: the controls make the recession more
ecient as a way to ght ination (reducing the need to
increase unemployment), while the recession prevents the
kinds of distortions that controls cause when demand is
high. However, in general the advice of economists is
not to impose price controls but to liberalize prices by assuming that the economy will adjust and abandon unprofitable economic activity. The lower activity will place
fewer demands on whatever commodities were driving ination, whether labor or resources, and ination will fall
with total economic output. This often produces a severe
recession, as productive capacity is reallocated and is thus
often very unpopular with the people whose livelihoods
are destroyed (see creative destruction).

they are adjusted more often.[66] They may also be tied to

a cost-of-living index that varies by geographic location
if the employee moves.
Annual escalation clauses in employment contracts can
specify retroactive or future percentage increases in
worker pay which are not tied to any index. These negotiated increases in pay are colloquially referred to as
cost-of-living adjustments (COLAs) or cost-of-living
increases because of their similarity to increases tied to
externally determined indexes.

7 See also
Ination hedge
List of countries by ination rate
Measuring economic worth over time
Real versus nominal value (economics)
Steady state economy
Welfare cost of ination

8 Notes
[1] See:
Wyplosz & Burda 1997 (Glossary);

6.5

Stimulating economic growth

If economic growth matches the growth of the money

supply, ination should not occur when all else is
equal.[64] A large variety of factors can aect the rate
of both. For example, investment in market production, infrastructure, education, and preventative health
care can all grow an economy in greater amounts than
the investment spending.[65]

6.6

Cost-of-living allowance

See also: Cost of living

The real purchasing-power of xed payments is eroded by
ination unless they are ination-adjusted to keep their
real values constant. In many countries, employment
contracts, pension benets, and government entitlements
(such as social security) are tied to a cost-of-living index,
typically to the consumer price index.[66] A cost-of-living
allowance (COLA) adjusts salaries based on changes in
a cost-of-living index. It does not control ination, but
rather seeks to mitigate the consequences of ination for
those on xed incomes. Salaries are typically adjusted annually in low ination economies. During hyperination

Blanchard 2000 (Glossary)

Barro 1997 (Glossary)
Abel & Bernanke 1995 (Glossary)
[2] Why price stability?, Central Bank of Iceland, Accessed
on September 11, 2008.
[3] Paul H. Walgenbach, Norman E. Dittrich and Ernest I.
Hanson, (1973), Financial Accounting, New York: Harcourt Brace Javonovich, Inc. Page 429. The Measuring
Unit principle: The unit of measure in accounting shall be
the base money unit of the most relevant currency. This
principle also assumes that the unit of measure is stable;
that is, changes in its general purchasing power are not
considered suciently important to require adjustments
to the basic nancial statements.
[4] Mankiw 2002, pp. 2232
[5] Mankiw 2002, pp. 238255
[6] Robert Barro and Vittorio Grilli (1994), European
Macroeconomics, Ch. 8, p. 139, Fig. 8.1. Macmillan,
ISBN 0-333-57764-7.
[7] John Makin (November 2010). Bernanke Battles U.S.
Deation Threat. AEI.
[8] Paul Krugman; Gauti Eggertsson. Debt,Deleveraging,
and the liquidity trap: A FisherMinskyKoo approach.

12

[9] MZM velocity. Retrieved September 13, 2014.

[10] Mankiw 2002, pp. 81107
[11] Abel & Bernanke 2005, pp. 266269
[12] Hummel, Jerey Rogers. Death and Taxes, Including
Ination: the Public versus Economists (January 2007).
p.56
[13] "Escaping from a Liquidity Trap and Deation: The Foolproof Way and Others" Lars E.O. Svensson, Journal of
Economic Perspectives, Volume 17, Issue 4 Fall 2003, pp.
145166
[14] Taylor, Timothy (2008).
Principles of Economics.
Freeload Press. ISBN 1-930789-05-X.
[15] Dobson, Roger (January 27, 2002). How Alexander
caused a great Babylon ination. The Independent.
Archived from the original on April 12, 2012. Retrieved
April 12, 2010.
[16] Harl, Kenneth W. (June 19, 1996). Coinage in the Roman Economy, 300 B.C. to A.D. 700. Baltimore: The
Johns Hopkins University Press. ISBN 0-8018-5291-9.
[17] Annual Report (2006), Royal Canadian Mint, p. 4.
Mint.ca. Retrieved May 21, 2011.
[18] Frank Shostak, "Commodity Prices and Ination: Whats
the connection, Mises Institute
[19] Richard von Glahn (27 December 1996). Fountain of
Fortune: Money and Monetary Policy in China, 1000
1700. University of California Press. p. 48. ISBN 9780-520-20408-9.
[20] Paul S. Ropp (9 July 2010). China in World History. Oxford University Press. p. 82. ISBN 978-0-19-517073-3.
[21] Peter Bernholz (2003). Monetary Regimes and Ination:
History, Economic and Political Relationships. Edward Elgar Publishing. pp. 5355. ISBN 978-1-84376-155-6.
[22] Earl J. Hamilton, American Treasure and the Price Revolution in Spain, 15011650 Harvard Economic Studies,
43 (Cambridge, Massachusetts: Harvard University Press,
1934)
[23] John Munro: The Monetary Origins of the 'Price Revolution':South Germany Silver Mining, Merchant Banking,
and Venetian Commerce, 14701540, Toronto 2003
[24] Walton, Timothy R. (1994). The Spanish Treasure Fleets.
Pineapple Press (FL). p. 85. ISBN 1-56164-049-2.
[25] The Price Revolution in Europe: Empirical Results from a
Structural Vectorautoregression Model. Peter Kugler and
Peter Bernholz, University of Basel, 2007 (Demonstrates
that it was the increased supply of precious metals that
caused it and notes the obvious logical aws in the contrary arguments that have become fashionable in recent
decades)
[26] Tracy, James D. (1994). Handbook of European History
14001600: Late Middle Ages, Renaissance, and Reformation. Boston: Brill Academic Publishers. p. 655.
ISBN 90-04-09762-7.

8 NOTES

[27] Michael F. Bryan, "On the Origin and Evolution of the

Word 'Ination'"
[28] Mark Blaug, "Economic Theory in Retrospect", pg. 129:
"...this was the cause of ination, or, to use the language
of the day, 'the depreciation of banknotes.'"
[29] Chisholm, Hugh, ed. (1922). "Ination". Encyclopdia
Britannica (12th ed.). London & New York.
[30] Michael F. Bryan, On the Origin and Evolution of the Word
Ination"{research/Commentary/1997/]
[31] Federal Reserve Boards semiannual Monetary Policy Report to the CongressIntroductory statement by JeanClaude Trichet on July 1, 2004]
[32] What is ination? - Ination, explained - Vox. Vox. July
25, 2014. Retrieved September 13, 2014.
[33] Kiley, Michael J. (2008/feds/2008/2008/2008). Estimating the common trend rate of ination for consumer prices
and consumer prices excluding food and energy prices. Finance and Economic Discussion Series (PDF) (Federal Reserve Board). Check date values in: |date= (help)
[34] See:
Taylor & Hall 1993;
Blanchard 2000;

The consumer price index measures movements in prices

of a xed basket of goods and services purchased by a
typical consumer.
[35] The numbers reported here refer to the US Consumer
Price Index for All Urban Consumers, All Items, series
CPIAUCNS, from base level 100 in base year 1982. They
were downloaded from the FRED database] at the Federal
Reserve Bank of St. Louis on August 8, 2008.
[36] Median Price Changes: An Alternative Approach to
Measuring Current Monetary Ination (PDF). Retrieved
May 21, 2011.
[37] IMF reprimands Argentina for inaccurate economic
data. Retrieved February 2, 2013.
[38] Argentina Becomes First Nation Censured by IMF on
Economic Data. Retrieved February 2, 2013.
[39] Bulkley, George (March 1981). Personal Savings and
Anticipated Ination. The Economic Journal 91 (361):
124135. doi:10.2307/2231702. JSTOR 2231702.
[40] Encyclopdia Britannica. Encyclopedia Britannica.
Retrieved September 13, 2014.
[41] Les Egyptiens sourent aussi de l'acclration de
l'ination, Cline Jeancourt-Galignani La Tribune,
February 10, 2011
[42] AFP (January 27, 2011). Egypt protests a ticking time
bomb: Analysts. The New Age. Retrieved January 29,
2011.
[43] Les prix alimentaires proches de la cote d'alerte" Le
Figaro, with AFP, February 20, 2011

13

[44] Steve H. Hanke (July 2013). North Korea: From Hyperination to Dollarization?". Retrieved August 21, 2014.

[61] Bordo, M. (2002) Gold Standard Concise Encyclopedia

of Economics

[45] Thorsten Polleit, "Ination Is a Policy that Cannot Last",

Mises Institute
[46] Tobin, James, American Economic Review, march
(1969), Ination and Unemployment

[62] Barsky, Robert B; J Bradford DeLong (1991).

Forecasting Pre-World War I Ination: The Fisher
Eect and the Gold Standard. Quarterly Journal of
Economics 106 (3): 81536. doi:10.2307/2937928.
JSTOR 2937928. Retrieved September 27, 2008.

[47] Mundell, James, Journal of Political Economy, LXXI

(1963), 28083 Ination and Real Interest

[63] DeLong, Brad. Why Not the Gold Standard?". Retrieved September 25, 2008.

[48] Tobin, J. Econometrica, V 33, (1965), 67184 Money

and Economic Growth

[64] Sigrauski, Miguel (1961). Ination and Economic

Growth. Journal of Political Economy 75 (6): 796810.
doi:10.1086/259360.

[49] Tsaing, S.C., Journal of Money, Credit and Banking,

I(1969), 26680 A Critical Note on the Optimum Supply
of Money
[50] (p272)
[51] Federal Reserve Boards semiannual Monetary Policy Report to the Congress RoundtableIntroductory statement by
Jean-Claude Trichet on July 1, 2004
[52] Robert J. Gordon (1988), Macroeconomics: Theory and
Policy, 2nd ed., Chap. 22.4, 'Modern theories of ination'.
McGraw-Hill.
[53] O'Sullivan, Arthur; Sherin, Steven M. (2003) [January 2002]. Economics: Principles in Action. The Wall
Street Journal:Classroom Edition (2nd ed.). Upper Saddle River, New Jersey 07458: Pearson Prentice Hall: Addison Wesley Longman. p. 341. ISBN 0-13-063085-3.
Retrieved May 3, 2009.
[54] Coe, David T. Nominal Wages. The NAIRU and Wage
Flexibility. Organisation for Economic Co-operation and
Development.
[55] Chang, R. (1997) Is Low Unemployment Inationary?" Federal Reserve Bank of Atlanta Economic Review
1Q97:413
[56] Oliver Hossfeld (2010) US Money Demand, Monetary
Overhang, and Ination Prediction International Network
for Economic Research working paper no. 2010.4
[57] Lagass, Paul (2000). Monetarism. The Columbia Encyclopedia (6th ed.). New York: Columbia University
Press. ISBN 0-7876-5015-3.
[58] Friedman, Milton. A Monetary History of the United
States 18671960 (1963).
[59] Von Mises, Ludwig (1912). The Theory of Money and
Credit (1953 ed.). Yale University Press. p. 240. Retrieved 23 January 2014. In theoretical investigation there
is only one meaning that can rationally be attached to the
expression Ination: an increase in the quantity of money
(in the broader sense of the term, so as to include duciary media as well), that is not oset by a corresponding
increase in the need for money (again in the broader sense
of the term), so that a fall in the objective exchange-value
of money must occur.
[60] The Theory of Money and Credit, Mises (1912, [1981],
p. 272)

[65] Henderson, David R. (1999). Does Growth Cause

Ination?".
Cato Policy Report 21 (6 September
18,
2012)./2011/01/02/business/20110102-metricsgraphic.html In Investing, Its When You Start And
When You Finish"], New York Times, January 2, 2012
[66] Flanagan, Tammy (September 8, 2006). COLA Wars.
Government Executive. National Journal Group. Retrieved September 23, 2008.

9 References
Abel, Andrew; Bernanke, Ben (2005). Macroeconomics (5th ed.). Pearson.
Barro, Robert J. (1997). Macroeconomics. Cambridge, Mass: MIT Press. p. 895. ISBN 0-26202436-5.
Blanchard, Olivier (2000). Macroeconomics (2nd
ed.). Englewood Clis, N.J: Prentice Hall. ISBN
0-13-013306-X.
Mankiw, N. Gregory (2002). Macroeconomics
(5th ed.). Worth.
Hall, Robert E.; Taylor, John B. (1993). Macroeconomics. New York: W.W. Norton. p. 637. ISBN
0-393-96307-1.
Burda, Michael C.; Wyplosz, Charles (1997).
Macroeconomics: a European text. Oxford [Oxfordshire]: Oxford University Press. ISBN 0-19877468-0.

10 Further reading
Auernheimer, Leonardo, The Honest Governments Guide to the Revenue From the Creation of
Money, Journal of Political Economy, Vol. 82, No.
3, May/June 1974, pp. 598606.
Baumol, William J. and Alan S. Blinder, Macroeconomics: Principles and Policy, Tenth edition. Thomson South-Western, 2006. ISBN 0-324-22114-2

14

11

Friedman, Milton, Nobel lecture: Ination and unemployment 1977

Mishkin, Frederic S., The Economics of Money,
Banking, and Financial Markets, New York, Harper
Collins, 1995.
Federal Reserve Bank of Boston, Understanding
Ination and the Implications for Monetary Policy:
A Phillips Curve Retrospective, Conference Series 53, June 911, 2008, Chatham, Massachusetts.
(Also cf. Phillips curve article)

11

External links

OECD Consumer Price Index.

United States Bureau of Labor Statistics - Consumer
Price Index.
U.S. Cost of Living Calculator (1913present)
(AIER).
U.S. Ination Calculator (1913present) (US BLS).
USD Ination Calculator
U.S. Ination (historical documents) (FRASER).
World Ination (12902006) (Consumer Price Index) (Swedish Riksbank).
Quandl, United States Ination Overview, collection of time series data from Federal Reserve, World
Bank, United Nations

EXTERNAL LINKS

15

12
12.1

Text and image sources, contributors, and licenses

Text

Ination Source: http://en.wikipedia.org/wiki/Inflation?oldid=648941936 Contributors: WojPob, Bryan Derksen, The Anome, Jeronimo,
Andre Engels, Arvindn, Gianfranco, Enchanter, Tim Shell, William Avery, SimonP, Anne, Gretchen, Heron, Octothorn, Mrwojo, Edward,
Michael Hardy, Earth, Mic, 172, Tomi, Tiles, Kosebamse, Ahoerstemeier, Mac, Angela, Xneilj, Susurrus, Andres, Cherkash, Mxn, Smack,
Ed Brey, Nikola Smolenski, Timwi, Gutza, Greenrd, IceKarma, Tpbradbury, Maximus Rex, Furrykef, Topbanana, Johnleemk, Pumpie,
Robbot, ChrisO, Jakohn, Fredrik, R3m0t, Altenmann, Romanm, Modulatum, Calmypal, Texture, Sekicho, Mervyn, Hadal, Vikingstad,
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Nek, OwenBlacker, RayBirks, Tacitus Prime, Scott Burley, Sam Hocevar, Jeremykemp, MementoVivere, Randwicked, SYSS Mouse,
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Mo0, Guy Harris, Denoir, Eric Kvaalen, Hipocrite, Ricky81682, John Quiggin, MarkGallagher, BernardH, Idont Havaname, Hohum,
Snowolf, Wtmitchell, BRW, Max Naylor, Amorymeltzer, Rdrs, Kazvorpal, Mahanga, Crosbiesmith, Bobrayner, Rodii, Nuno Tavares,
Boothy443, Kelly Martin, 2004-12-29T22:45Z, Camw, Wdyoung, Ylem, Marc K, Commander Keane, Lambticc, Chochopk, MONGO,
Tabletop, Bkwillwm, Wikiklrsc, Bluemoose, Maartenvdbent, Wayward,
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Xcuref1endx, LimoWreck, Ashmoo, Graham87, Deltabeignet, Magister Mathematicae, Wachholder0, FreplySpang, Jtdouglas, Drbogdan, Rjwilmsi, Buldri, Davidp, Vary, Strait, Salix alba, MZMcBride, Tawker, Feco, DickClarkMises, Cassowary, Dillon256, Ravidreams,
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Ptrpro, FisherQueen, Hdt83, MartinBot, Matt Lewis, Fazili786, Ultraviolet scissor ame, Glendoremus, R'n'B, CommonsDelinker, Ghileman, J.delanoy, Trusilver, Levylwesela, EscapingLife, UBeR, Xris0, Katalaveno, Ncmvocalist, Sonical, Mikael Hggstrm, Uncompetence,
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TXiKiBoT, CriticalKnowledge, Rizalninoynapoleon, Wikilectual, Miranda, Goldenjet, Sintaku, Seraphim, Gamezhero, LeaveSleaves,
Wassermann, MikaNystrom, RNMJU, Rich0908, BotKung, ACEOREVIVED, Larklight, Dirkbb, Lamro, Graymornings, Ziphon, Enviroboy, Phmoreno, Imscoop22, Insanity Incarnate, Nicolaas Smith, Logan, Herbou, Hazel77, S.rvarr.S, SieBot, K. Annoyomous, Tresiden,
Graham Beards, Drvrage, Manixrock, Metaprax, Nathan, Cadwallader, Keilana, Perspicacite, Jvs, MinorContributor, Oda Mari, JLKrause,
Jonahtrainer, Oxymoron83, Nuttycoconut, OKBot, C'est moi, Cmoti, Foggy Morning, Mygerardromance, Graemejclark, Nn123645,
Gideongono, Chimbwidz, Kojo2000, Joeblogger, Miss World, Rinconsoleao, Denisarona, GoogleMac, Economy speak, DArtgnan, Nicolaas J Smith, Troy 07, Vivo78, WikipedianMarlith, HathNo, Kenji000, EGeek, Elassint, ClueBot, LAX, Orangedolphin, Zihwye, PipepBot, Snigbrook, The Thing That Should Not Be, Stanleywinthrop, Stupid2, Lungslungs, Chrisbecks, Ewawer, Daninbrisvegas, Gazikator, Soaringbear, Niceguyedc, Edayapattiarun, Rickdoetmee, Marcbaldwin27, ChandlerMapBot, ScottBuckley, Dotter, Dwrcan, Alexbot,
Addy14, Darkmasterjoey, NuclearWarfare, Subdolous, Ember of Light, Chrisnoscrub047, Redthoreau, Maria.s.bowman, Thingg, NJGW,
Qwfp, Doopdoop, Cpsteiner, DrTh0r, BigK HeX, 03md, XLinkBot, Mangy Cheshire Cat, BodhisattvaBot, Dudeedud, Dollarbills, Mitch
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Cst17, Download, Gtk123, Vega2, Ashaktur, Casperdc, Buddha24, Kyle1278, Economix4, LinkFA-Bot, Teac82, Tassedethe, Ehrenkater,
$1000000000ten0one1, Tide rolls, Teles, David0811, Greyhood, Legobot, Kjkkkjj, Kurtis, Luckas-bot, Yobot, MikeStu, 2D, ArsenalHenry2, Fraggle81, TaBOT-zerem, Cameronthom, Skarsa72, II MusLiM HyBRiD II, Ulbsterlad, Darx9url, Mark Borgschulte, K Soze,
Ajh16, SturmTiger42, KamikazeBot, Baig hyder, Suman231, AnomieBOT, Misessus, 1exec1, X-11111, TruthComesFromAGunBoat, Piano non troppo, Ubitubi, AdjustShift, Grolltech, Soxwon, Kingpin13, Rohan.sankhla, Sepo San Borg, Mr Trichet, WhiteItems, PennySeven,
Jessehillbilly3590, SystemicDestruction, Citation bot, Cleapow223, Bob Burkhardt, Eskandarany, Xqbot, Pasela, Zad68, Ron Paul...Ron

16

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12.2

Images

File:2013_Inflation_rates_map_of_the_world_per_International_Monetary_Fund.svg Source:
http://upload.wikimedia.org/
wikipedia/commons/d/d2/2013_Inflation_rates_map_of_the_world_per_International_Monetary_Fund.svg License: CC BY-SA 4.0
Contributors: Own work Original artist: M Tracy Hunter
File:Emblem-money.svg Source: http://upload.wikimedia.org/wikipedia/commons/f/f3/Emblem-money.svg License: GPL Contributors:
http://www.gnome-look.org/content/show.php/GNOME-colors?content=82562 Original artist: perfectska04
File:Federal_Funds_Rate_(effective).svg Source:
http://upload.wikimedia.org/wikipedia/commons/7/7d/Federal_Funds_Rate_
%28effective%29.svg License: CC BY-SA 3.0 Contributors: self-made using data from the Federal Reserve[1] The gnuplot source code
used to generate the graph is found on its discussion page at Wikimedia Commons. Original artist: Kbh3rd
File:M2andInflation.png Source: http://upload.wikimedia.org/wikipedia/commons/8/80/M2andInflation.png License: CC BY-SA 3.0
Contributors: Own work Original artist: Bkwillwm
File:Two_20kr_gold_coins.jpg Source: http://upload.wikimedia.org/wikipedia/commons/9/92/Two_20kr_gold_coins.jpg License: CC0
Contributors: Own work Original artist: Anonimski
File:US_Historical_Inflation_Ancient.svg Source: http://upload.wikimedia.org/wikipedia/commons/2/20/US_Historical_Inflation_
Ancient.svg License: Public domain Contributors: Wikipedia EN Original artist: Lalala666
File:US_Inflation.png Source: http://upload.wikimedia.org/wikipedia/commons/8/83/US_Inflation.png License: CC0 Contributors:
Own work Original artist: Lawrencekhoo

12.3

Content license

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