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What does inflation mean?

Wondering why things always seem to cost more and more? It's the definition of inflation.

  videos Hot for words

 

Marina Orlova of Hot for Words: Oh my goodness, look at all these bills! Everything seems so much more expensive now than it was last year, and I can't turn on the news without hearing about inflation. Hmm, I wonder why things always seem to cost more and more?! Hot for Words must investigate.

"Inflation" starts with Latin stem "inflare," which is made up of two parts. First there's "in" (which means "into") and "flare" (which means "to blow"). From there we get the Latin word "inflationem," which means "a puffing up, or flatulence." This evolved into the word "inflation" by the mid-14th century. It originally meant "swelling caused by gathering wind, or flatulence," but by 1838 it had also come to mean "increase of prices" in American English.

So what causes the increase in prices? There are two ways this can happen. Major inflation can happen when a government puts more money into circulation - the more money there is, the less valuable it becomes. On the other hand, changes to supply or demand for certain goods can also cause inflation - but not as severe.

Believe it or not, most economists see inflation as a good thing - as long as it happens at a low, steady rate. And inflation can actually have some benefits - it causes banks to adjust interest rates, and encourages people to invest in a variety of ways.

So despite the inflation in the economy, cheer up and look on the bright side!

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