Inflation

A general rise in the price level. This is normally calculated by comparing the price of a basket of goods (measured by a consumer price index) at different times, and can be used as a measure of the cost of living. But consumers can substitute cheaper products for more expensive ones (eg, chicken for beef) and a hedonic adjustment needs to be made to reflect the improved quality of goods. Central banks often have a mandate to control inflation and may look at a wide range of gauges to understand the underlying trend; for example, measures of “core” inflation that exclude volatile items such as food and energy. In this article, we ask whether inflation really matters.