Inflation is a term that is frequently misunderstood. Many people are unaware of the factors that keep prices high. This article will attempt to clarify these issues by examining various aspects of inflation.
To start, let us define inflation. It can be broken down into two categories – nominal and real terms. In nominal terms, it refers to the overall increase in the prices of goods and services over time. It measures the rate at which the general level of prices for goods and services is rising.
In real terms, inflation refers to the decrease in the purchasing power of a currency over time. It measures how much value a currency loses over time due to a general price increase.
Now that we understand what inflation is, we can address the question of why, when inflation is declining, prices remain high. Both the nominal and real definitions of inflation referred to “general prices,” suggesting that inflation is a broad measure and considers the average price changes across various goods and services.
The concept of decreasing inflation can be attributed to a phenomenon known as “disinflation” or “stagflation”. Disinflation is a slowdown in the rate of inflation, meaning that average prices are still rising but at a decreasing rate.
On the other hand, the reversing car, in this case, is called “Deflation”. This is the direct opposite of inflation and refers to the general decrease in the prices of goods and services.
To fully understand the current happenings in terms of inflation and price changes, we can look at Month-on-Month (MoM) Inflation and Year-on-year (YoY) Inflation. MoM measures the percentage change in prices from one month to the next, providing a short-term perspective on inflation trends. Meanwhile, YoY measures the percentage change in prices over a 12-month period, giving a more extended and stable view of inflation.
These factors will help us better understand why prices might remain high even as inflation decreases. By taking a closer look at these dimensions, we can gain a better perspective on inflation and its impact on prices.
