Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. It can occur for a variety of reasons, such as an increase in demand or a decrease in supply, and it is typically measured using the consumer price index (CPI) or the producer price index (PPI). Inflation can have significant impacts on an economy, including decreasing purchasing power, reducing the value of savings, and distorting resource allocation. Central banks typically try to maintain low and stable inflation through various monetary policies, such as adjusting interest rates or engaging in open market operations.

The current economic cycle is proving to be particularly challenging to categorise, with unique circumstances creating a two-speed economy. Depending on which economic indicators are examined, the US economy could be categorised as being in any one of the business cycle’s four phases. The unemployment rate is at a multi-decade low, suggesting an economy in its expansion phase, but other indicators such as business surveys and the rate of change in inflation suggest an economy already experiencing stagflation.