Inflation and deflation, in , are terms used to describe, respectively, a or an increase in the value of money, in relation to the goods and services it will buy.

Inflation is the pervasive and rise in the level of prices measured by an of the cost of various goods and services. Repetitive price increases the power of money and other assets with fixed values, serious distortions and uncertainty. Inflation results when actual pressures and of future developments cause the demand for goods and services to the supply at existing prices or when is by faltering productivity and marketplace . price increases were historically directly to wars, poor harvests, political upheavals, or other events.

Deflation a in the level of prices, such as during the Great of the 1930s; it is usually associated with a prolonged of activity and high unemployment. price have become rare, however, and inflation is now the public and private planning.

Kinds of Inflation
When the upward of prices is gradual and irregular, averaging only a few points each year, such creeping inflation is not considered a serious threat to and social progress. It may even stimulate activity: The illusion of personal income growth beyond actual productivity may encourage ; housing may increase in of future price ; business in plants and may accelerate as prices rise more rapidly than costs; and personal, business, and government borrowers realise that loans will be repaid with money that has less power.

A greater concern is the growing pattern of chronic inflation characterised by much higher price increases, at rates of 10 to 30 in some industrial nations and even 100 or more in a few developing countries. Chronic inflation tends to become permanent and ratchets upward to even higher levels as distortions and expectations . To chronic inflation, activities are disrupted: buy goods and services to avoid even higher prices; real speculation increases; businesses on short-term ; to savings, insurance , pensions, and long-term are reduced because inflation their future power; governments rapidly spending in of inflated ; and nations suffer competitive trade disadvantages forcing them to turn to protectionism and controls.

In the most extreme form, chronic price increases become hyperinflation, causing the entire system to break down. The hyperinflation that in Germany following World War I, for example, caused the of in circulation to more than 7 billion times and prices to jump 10 billion times during a 16-month before November 1923. Other hyperinflations in the United States and France in the late 1700s; in the USSR and Austria after World War I; in Hungary, China, and Greece after World War II; and in a few developing nations in recent years. During a hyperinflation the growth of money and becomes explosive, destroying any to real assets and forcing a on barter arrangements. As governments try to pay for increased spending programs by rapidly the money supply, the inflationary of budget deficits disrupts , social, and political .

History
Examples of inflation and deflation have throughout history, but detailed records are not to measure before the Middle Ages. historians have the 16th to early 17th centuries in Europe as a of long-term inflation, although the average rate of 1 to 2 was modest by modern standards. changes during the American , when prices in the U.S. rose an average of 8.5 per month, and during the French , when prices in France rose at a rate of 10 per month. These relatively flurries were followed by long of international inflations and deflations to political and events.

The U.S. reported average price changes as follows: 1790 to 1815, up 3.3 ; 1815 to 1850, down 2.3 ; 1850 to 1873, up 5.3 ; 1873 to 1896, down 1.8 ; 1896 to 1920, up 4.2 ; and 1920 to 1934, down 3.9 . This extended history a recurring of inflations, to wartime , followed by long of price or deflation. prices accelerated during the World War II era, rising at an average rate of 7.0 percent from 1940 to 1948, and then from 1948 to 1965, when the increases averaged only 1.6 , including a peak of 5.9 in 1951 during the Korean War.

In the mid-1960s a chronic inflationary began in most industrial nations. From 1965 to 1978 American prices increased at an average rate of 5.7 , including a peak of 12.2 in 1974. This ominous was followed by price gains of 13.3 in 1979 and 12.4 in 1980. Several other industrial nations suffered a acceleration of price increases, but some countries, such as West Germany (now part of the united Republic of Germany), avoided chronic inflation. Given the of most nations in the world , these disparate results reflected the relative effectiveness of national .

This unfavorable inflationary was in most industrial nations during the mid-1980s. Austere government fiscal and monetary begun in the early part of the combined with sharp in world oil and prices to return the average inflation rate to about 4 .