What is inflation? Glossary of terms, definitions, and meanings


What is inflation? Glossary of terms, definitions, and meanings

Inflation is a hot topic of conversation at the moment and for good reason. Inflationary pressure around the world is on the rise, impacting the prices of products, consumer purchasing power, and the cost of living.

We’ve compiled this glossary to help break down the various economic terms, acronyms, and jargon that are now popping up in news stories, social posts, and table top talk. We’ll be updating this word bank as the global conversation evolves.

What is inflation?

Inflation is the increase in the sustained level of prices of goods and services in the economy. Generally, when the total amount of money in an economy increases too rapidly, the value of the market’s currency likely decreases—meaning inflation lowers consumer purchasing power.

What is disinflation?

Disinflation is when the rate of inflation decreases, usually in the short term. Prices are still rising, but at a slower rate. Disinflation happens for a variety of reasons including decreases in demand, stricter monetary policy from a central bank, or increases in productivity. Disinflation is not the same as deflation, which is a sustained decrease in the general price level of goods and services.

What is hyperinflation?

Hyperinflation is the rapid rise in prices of goods and services in an unpredictable manner. It’s considered hyperinflation when prices sharply increase more than 50% a month. For consumers this means that a box of cookies could cost one amount in the morning and be higher in price by the afternoon. 

What is stagflation?

Stagflation is when a market’s economic growth is slow during a high inflation climate. High unemployment numbers and low wage growth usually contribute to an economy in stagflation. For businesses, enduring pressures like high prices of raw materials and commodities can challenge productivity, economic, and business growth.

What is shrinkflation?

Shrinkflation is associated with product downsizing. It occurs usually during a time of heightened inflation, when a company sells less product for the same price. For consumers, this shows up on shelves as slightly reduced sizes of products without a discount.

What is skimpflation?

Skimpflation speaks of situations where the quality of a product or service changes while price remains the same. Skimpflation during times of heightening inflation may be a result of a labor shortage and rising business costs. For consumers, this can show up in various forms. Reduction of services as seen in airlines that no longer offer free meals or hotels that have eliminated daily housekeeping could be seen as skimpflation examples.

What is headline inflation?

Headline inflation refers to total inflation and the general increase in the price of goods, inclusive of volatile figures that may be impacted due to economic conditions. Headline inflation is often closely related to cost-of-living shifts.

What is sticky inflation?

Sticky inflation is used to describe prices that are slow to change. For example, food prices have risen globally and show no signs of coming down anytime soon—they are sticking. This is compared to other expenses that may go up in price quickly but come down quicker too—one example would be gas prices in the U.S. currently.

What is transitory inflation?

In today’s economic climate, the term transitory inflation speaks to the notion that certain price increases would be short-lived or temporary, and more limited to sectors hit hard by the pandemic. This was a term graciously used in 2021 to describe the perceived state of inflation in some countries, including the United States.

Is inflation always bad?

When inflation is mild (where prices rise 3% or less a year), it can actually trigger consumer spending, which has a healthy effect on the economy. In an environment where consumers expect inflation, the tendency would be to spend now rather than later (because prices would be higher in the future). Consumer spending drives economic growth.

What is a consumer recession?

A consumer recession is when the core habits of traditional consumption have shifted, forcing shoppers to behave as though a recession is already here. They consume less, shift their spend to value retailers and brands, and buy more items on promotion. 

What is a supply chain?

A supply chain is a full operational network that fuels the entire process of making and selling goods. It includes everything, starting with the raw supply materials, the manufacturing process, and the distribution of products, and the sale of goods.

What is a value chain?

Value chain speaks to a set of strategic business activities that focuses on creating added desirability or relevance to a product or service to enhance customer value.

What is price elasticity?

Price elasticity measures how consumers respond to changes in price for a product or service. When the demand or supply for something noticeably changes after a price change, the product or service would be categorized as price elastic. If, however, there is no-to-little change in demand or supply, the product or service can be considered price inelastic.

What is cross elasticity?

Cross-price elasticity measures how consumers respond to changes in price within the context of a wider product consideration set. This includes products or categories that are complementary and often consumed together, products that are closely related, and products seen as a viable substitution. Our analysis of inflation in Latin America provides deeper examination of cross elasticity.

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What is CPI?

Consumer Price Index (CPI). CPI measures price changes seen by the average urban consumer based on a fixed basket of goods and services representing what people buy in their everyday lives—from gasoline to groceries to cellphone fees and doctor visits. The CPI is the most widely reported measure of price changes across countries. 

What is PCE?

Within the United States, there are two primary measures of the consumer prices. One is the Consumer Price Index (CPI), and the other is the Personal Consumption Expenditure (PCE). PCE measures goods and services bought by all U.S. households and nonprofits and is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. The PCE is issued by the Bureau of Economic Analysis.

What is HICP?

Within Euro markets, the Harmonised Index of Consumer Prices (HICP) is used to measure consumer price inflation. That means the change over time in the prices of consumer goods and services purchased by Euro area households.

What is PPI?

While CPI measures price changes from the consumer’s perspective, markets like China also leans into its Producer Price Index (PPI), which reflects the prices factories charge wholesalers for their products.

Help us build this glossary. Is there an inflation-related word that you’ve heard that you’d like us to define? Is there a term that you’d like us to add to this glossary? If so, feel free to submit here. We’ll be updating this page on a regular basis.