Inflation
Inflation is a general rise in prices over time, which means money buys less than before.
▶ Interact
Play with the controls to see the idea in action.
📘 Learn
Inflation is a general rise in prices over time, which means money buys less than before.
- Measured by the consumer prices index
- Caused by high demand or rising costs
- Central banks aim to keep it low
🧠 Quick quiz
Three questions. Score 2 or more to complete the topic.
What is Inflation?
Within Economics & Civics, which covers money, markets, business, government, law and citizenship: how societies are organised and run, this topic explains Inflation. Economics and civics topics explain how money, markets, laws and government affect people, so each topic here pairs a clear definition with a model.
Check that you can explain Inflation in your own words and give one example from everyday life. If you can do that, you have understood the core idea.
Understanding Inflation helps you read the news critically and weigh up policies, choices and arguments about society.
Inflation in detail
Inflation is a sustained rise in the general level of prices in an economy, so the purchasing power of money falls. It is measured by the percentage change in a price index, such as the Consumer Prices Index (CPI), which tracks a typical basket of goods and services. Deflation is a fall in prices.
Causes include demand-pull inflation (too much spending chasing too few goods), cost-push inflation (rising costs of materials, wages or energy) and increases in the money supply. Effects include lower real incomes for people on fixed pay, erosion of savings and uncertainty for businesses. Central banks aim for low, stable inflation, such as 2%, often by changing interest rates.
How the interactive helps you understand Inflation
Watch the growth curve in the interactive. Use any sliders or buttons it offers to change the values and see how the growth curve responds.
Before you change anything, predict the result. Then change one value at a time and check whether your prediction was right. This is a quick way to build a correct mental model of Inflation.
Real-life uses and examples
- Explain Inflation to a classmate using a choice you make yourself, such as spending pocket money.
- Give a balanced answer about Inflation by considering more than one point of view.
- Relate Inflation to a news story about prices, jobs, elections or government spending.
Common mistakes to avoid
- Giving an opinion without evidence or a clear economic or civic reason.
- Confusing a short-term effect with a long-term one.
- Learning the definition without testing it. Use the quiz and the interactive to check that you can apply the idea.
Frequently asked questions about Inflation
What is Inflation?
Inflation is a general rise in prices over time, which means money buys less than before.
What are the most important points about Inflation?
The main points are: Measured by the consumer prices index; Caused by high demand or rising costs; Central banks aim to keep it low.
Why is Inflation useful?
Understanding Inflation helps you read the news critically and weigh up policies, choices and arguments about society.
How can I practise Inflation?
Open the interactive at the top of this page and change the controls one at a time. Predict the result before each change, then take the three-question quiz. A score of two or more marks the topic as complete on this device.
Which topics are related to Inflation?
Related topics in Economics & Civics include Economic Growth, Business Costs and Revenue, Production and Productivity.