Inflation

Measures the rise in the general level of prices over a 1-year period and is a sustained rise in the general level of prices. Hyperinflation is an extreme form of inflation where prices rise so rapidly that people lose confidence in money, with a typical rise of a 100%-1000% in prices per year. Rapid inflation can cause many businesses to be uncertain about how costs will change and their ability to pass on on rising costs to their inputs to customers. It is likely to make consumers more cautious and perhaps reduce their spending however in contrast to this rising levels of inflation can cause a wealth effect on people which is when people feel  they have become wealthier because the value of their assets e.g. their house, has risen in price, leading to people spending more.

Inflation is measured by the Retail Price Index or the Consumer Price Index (the more common one used). The consumer price index, CPI, is based on a collection of prices tp represent typical consumer spending and is directly used for adjusting pensions and other benefits to compensate for the effects of inflation, and less directly it also has a factor on influencing price setting and wage negotiations.