DEFINITION OF 'Inflation'
Inflation is chronic and sustained rise in the price level which is maintained for longer period of time.
Generally we associate the inflation with rise in the price level. But all rises in the price level can not be regarded as the inflation. A very small rise in the price which is generally less than the 2 % is not regarded as inflation. Small rise in the price level is counted as beneficial to economic activities. Increase in the price level is caused by the rise in the money supply. Increase in the money supply casues more demand and more money starts chasing few goods and service. It results into the rise in the general price level which remains sustained for longer period of time.
Inflation is inversely related to the value of money or purchasing power of money. An increase in the price level reduces the purchasing power of money and its value. On other hand, deflation which is characterised by the fall in the general price level of goods and services increases the purchasing power or value of money in the market