What is Inflation and Deflation?

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It denotes a rise in general level of prices. More specifically, inflation refers to the rate of general price increase over a period of one year. For example, if we say that the current inflation is 8 percent, it means the general price level has increased by 8 percent over the last one year. It has been observed that inflation the world over has generally remained in the positive territory, implying that the general price level typically rises. 


In other hand, Phenomenon of sustained decline in the price level of goods and services is called deflation. For example, if we say that the current deflation rate is 3.5%, it means that the inflation is -3.5%. In other words, the general price level has fallen by 3.5% over the last one year or specific term period. In 1990's, Japan suffered from deflation for almost a decade of reduction in the purchasing power per unit of money.
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