The Consumer Price Index and Inflation

Inflation and Deflation

The information here is based on items in the AmosWEB Economic GLOSS*arama.

Inflation is a sustained increase in the general level of prices. It is usually measured by an index, and the most common index in the United States is the Consumer Price Index

Deflation, the opposite of inflation, is a sustained decline in the general level of prices. Deflation is rare in this country, but may occur in a recession, especially when severe. Note that deflation is not the same thing as disinflation.

Recession is a general period of declining economic activity. Inflation is usually low or absent in a recession. A depression is a severe recession -- typically lasting a decade or so -- such as that suffered by the United States in the 1930s.

The United States had low or negative inflation rates from 1921 to 1940. In the 1920s, although stock prices were high, the economy was weak, preparing for the disaster of the 1930s.

To describe an economic downturn, the term for centuries was depression; the word recession in this sense is a recent euphemism.  The first recorded use found by the Oxford English Dictionary was in November 1929, in the journal Economist:

“The material prosperity of the United States is too firmly based, in our opinion, for a revival in industrial activity -- even if we have to face an immediate recession of some magnitude -- to be long delayed.”

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