Inflation: Measurement and Causes

Inflation — a sustained increase in the general price level — is one of the most important macroeconomic phenomena. Maintaining low and stable inflation (the UK target is 2%) is a primary objective of the Bank of England's Monetary Policy Committee (MPC). This lesson examines how inflation is measured, the main theories of its causes, and the UK's recent inflationary experience.

---

Defining Inflation, Deflation, and Disinflation

Term	Definition	Example
Inflation	A sustained increase in the general price level over time	UK CPI inflation of 11.1% in October 2022
Deflation	A sustained decrease in the general price level	Japan experienced deflation for much of the 1990s and 2000s
Disinflation	A fall in the rate of inflation (prices still rising, but more slowly)	UK inflation falling from 11.1% in October 2022 to 4.6% in October 2023
Hyperinflation	Extremely rapid and out-of-control inflation, typically exceeding 50% per month	Zimbabwe 2008 (approximately 79.6 billion % per month); Weimar Germany 1923