Inflation: Its Meaning and Measurement

Abstract

An economy is commonly regarded as suffering from inflation if it is undergoing a period of continuously rising prices. The upward adjustment of prices is, however, subject to delays of varying duration. Prices, for example, may be held down deliberately in the short run by the authorities, or alternatively, if demand is too great to be satisfied by current domestic production at current prices, it is possible for the necessary balancing of demand and supply to result not through rising domestic prices but through either the running down of stocks or through the purchase of additional imported goods. Furthermore, it is possible for the prices of individual products to be held constant, even at a time of sharply rising costs, by recourse to a policy of deterioration in size or quality.