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The rewards of effectively predicting inflation are greatest when it is high and unstable, according to economists Robert Lucas and Thomas Sargent.
What is inflation?
In the field of economics, inflation refers to an overall rise in the cost of goods and services throughout a nation. Each unit of currency may purchase fewer products and services as the general price level rises, hence inflation is associated with a decline in the purchasing power of money.
Deflation, which is the prolonged drop in the general level of prices for goods and services, is the reverse of inflation. The annualized percentage change in a general price index, or inflation rate, is the most widely used indicator of inflation.
The consumer price index (CPI) is frequently employed for this purpose because price increases are not uniform across the board. In the United States, wages are also calculated using the employment cost index.
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