nflation is defined as 'the rise in the general price level of goods and services in an economy.

During inflation, the purchasing power of money decreases, the real value of money decreases. A person buys 'lesser' quantity of goods than before with the same amount of money.

 In contrast to the definition of inflation, deflation can be defined as 'the fall in the general price level of good and services in an economy'. The purchasing power of money increases, the real value of money increases and an individual can buy more quantity of goods than before with the same amount of money.

 Measuring Inflation and Deflation, Inflation rate and the deflation rate are both derived by measuring the changes in the general price index. There are three price indexes used to measure inflation.

 First is the 'consumer price index' (CPI), which measures the cost of buying a fixed basket of goods and services representative of the purchases of the urban consumers (Macroeconomics-Rudiger, Fisher, Startz).

 Second is the 'GDP Deflator, which measures the prices of a wider group of goods and services than the Consumer price index. Third is the 'Producer Price Index' (PPI). Even it measures the cost of a given basket of goods, but it includes goods like raw material, semi-finished goods, etc.

There are different comparison between the two. Investment. In case of inflation, people tend to invest less as the surplus money is less, while in case of deflation people want to save more as they have more surplus money.

 Demand and Supply of Goods and Services. In case of inflation, the demand for the goods decreases because of the high prices and the supply increases as the seller wants to maximize his profit by selling the goods at a higher price, while in case of deflation, the demand will increase because of the decrease in the price of goods and the sellers will supply less goods as selling it at a lower price will not break even his cost.

 Taxes. In case of inflation, the investors can be imposed to 'hidden taxes'; because the increased earnings can push them to the higher tax payers bracket, while in case of deflation, government will have to enforce tax cuts to boost the demand.

 Rate of Interest. in case of inflation high rate of interest is charged by the central bank to reduce the money supply; during deflation even the interest of zero does not increase the money supply.

That is questionable; it sort of depends on how bad the inflation is or how bad the deflation is. The theory behind deflation being bad is that it can cause a vicious cycle. See deflation means that the price of goods is decreasing as the value of the dollar increases. So if you are a business and your shelves are full of goods, the value of those goods is constantly decreasing and you must struggle to sell them for a profit.

In addition, consumers will sometimes catch on to deflation and will delay purchasing certain highticket items such as cars or appliances as they wait for the prices to decline. This causes a chain reaction of less consumer purchases and lower and lower prices. All of this can lead to business failures, which can lead to higher unemployment, which leads to less consumer spending. The vicious cycle continues.

Inflation can be a bad deal though as well as it puts pressure on the consumer. When inflation is high, the value of the dollar is declining, so goods such as gasoline and other products rise in price rapidly. This makes it difficult for consumers to make purchases, however there are usually more job opportunities as businesses are profitable and looking to expand. Because of this situation, a slight bit of inflation is considered to be good overall.

If inflation gets out of hand however, lending rates can skyrocket, making it difficult for consumers and businesses to borrow money. Additionally anyone who depends on fixed income (like retirees) will see the value of their invested money constantly eroded by inflation. Inflation is good because it drives production and economic growth; however it drags on the quality of life for the average consumer who is trying to get by.

In November of 2013, US inflation rate accelerated to 1.2 percent, after slowing to a four-year low in October. On a monthly basis, prices remained unchanged, due to lower gasoline and natural gas prices.

The all items index increased 1.2 percent over the last 12 months, a larger increase than the 1.0 percent rise for the 12 months ending October. The 12-month increase in the index for all items less food and energy remained at 1.7 percent for the third month in a row. The food index increased 1.2 percent over the last 12 months, while the energy index declined 2.4 percent.

The energy index declined in November, offsetting increases in other indexes to result in the seasonally adjusted all items index being unchanged. The indexes for gasoline and for natural gas fell significantly, more than offsetting increases in the electricity and fuel oil indexes. The food index rose slightly in November, with the food at home index unchanged.

The index for all items less food and energy rose 0.2 percent in November. Increases in the indexes for shelter and airline fares accounted for most of the increase, with the indexes for recreation and for used cars and trucks also rising. The indexes for apparel, for household furnishings and operations, and for new vehicles all declined in November.