Y12W31VC Inflation, and why it's harder than it sounds

In 2021 and 2022, something happened that hadn't happened in a generation. Prices started rising noticeably. Most people under forty had never lived through inflation as adults. The discussion that followed produced, alongside some useful thinking, an enormous amount of confused argument about what caused it and what would stop it. This week's article examines why inflation is one of the topics where clear economic thinking is genuinely hard.

Core Vocabulary

inflation

/ɪnˈfleɪʃən/|in·fla·tion

noun

a rise in the general price level

Word Breakdown: in- (in) + -flation (blowing, Latin flare)

Word family: inflate (n.)

Synonyms: price rise, expansion, increase

Collocations: inflation rate, inflation measure

In the articleThis was called, correctly, inflation.

measure

/ˈmeʒər/|meas·ure

noun

a specific method of quantification

Word family: measured (adj.)

Synonyms: gauge, metric, standard

Collocations: measure inflation, take measures

In the articleOver roughly eighteen months, the general price level in countries like Australia, the United States, the United Kingdom and most of Europe rose by so

monetary

/ˈmʌnɪteri/|mon·e·tar·y

adjective

relating to money supply

Word Breakdown: monet- (money, Latin moneta) + -ary (relating to)

Word family: money (n.)

Synonyms: financial, fiscal, economic

Collocations: monetary policy, monetary supply

In the articleThe monetary story.

fiscal

/ˈfɪskəl/|fis·cal

adjective

relating to government spending and taxation

Word family: finance (n.)

Synonyms: budgetary, financial, governmental

Collocations: fiscal policy, fiscal spending

In the articleThe American economist Stephanie Kelton and other proponents of what's called Modern Monetary Theory argue that the conventional framework overemphasi

baseline

/ˈbeɪslaɪn/|base·line

noun

the reference level

Word Breakdown: base + -line

Word family: base (n.)

Synonyms: reference, standard, starting point

Collocations: baseline measurement, baseline comparison

In the articleThe baseline assumption of most people — that prices are naturally stable — is historically unusual.

compound

/kəmˈpaʊnd/|com·pound

verb | [base – past – past participle]

accumulate at accelerating rates

Word Breakdown: com- (together) + pound (place)

Word family: compounding (n.)

Synonyms: accumulate, intensify, combine

Collocations: compound interest, compound effect

In the articleInflation compounds: two per cent per year sounds trivial until you calculate that it halves purchasing power in about thirty-five years.

divergent

/daɪˈvɜːrdʒənt/|di·ver·gent

adjective

differing in direction

Word Breakdown: di- (apart) + vergent (turning)

Word family: diverge (n.)

Synonyms: differing, separate, different

Collocations: divergent views, divergent trends

In the articleDivergent inflation expectations can become self-fulfilling: if workers expect prices to rise, they demand wage rises; if firms expect wage rises, they raise prices.

calibration

/ˌkælɪˈbreɪʃən/|cal·i·bra·tion

noun

adjustment to accuracy

Word Breakdown: calibr- (to adjust) + -ation (act of)

Word family: calibrate (n.)

Synonyms: adjustment, tuning, alignment

Collocations: calibration process, policy calibration

In the articleThe central bank's job is a continuous calibration: enough restraint to prevent inflation, not so much that it stifles growth.

Technical Terms

inflation

/ɪnˈfleɪʃən/|in·fla·tion

noun

sustained rise in the general price level, as measured by CPI or similar indices

Synonyms: related concept, similar principle

Example: This term describes an important economic principle.

In the articleThis was called, correctly, inflation.

Consumer Price Index

/kənˈsjuːmər praɪs ˈɪndeks/|con·sum·er price in·dex

noun

CPI) (the most common measure of inflation in consumer goods

Synonyms: related concept, similar principle

Example: This term describes an important economic principle.

In the articleOver roughly eighteen months, the general price level in countries like Australia, the United States, the United Kingdom and most of Europe rose by somewhere between 8 and 12 per cent, depending on the country and the measure.

monetary policy

/ˈmʌnɪteri/|mon·e·tar·y

noun

central-bank tools, primarily interest rates, for influencing the economy

Synonyms: related concept, similar principle

Example: This term describes an important economic principle.

In the articleThe monetary story.

fiscal policy

/ˈfɪskəl/|fis·cal

noun

government spending and taxation decisions

Synonyms: related concept, similar principle

Example: This term describes an important economic principle.

In the articleThe American economist Stephanie Kelton and other proponents of what's called Modern Monetary Theory argue that the conventional framework overemphasi

wage-price spiral

/weɪdʒ praɪs ˈspaɪərəl/|wage-price spi·ral

noun

the feedback loop between wage increases and price increases

Synonyms: related concept, similar principle

Example: This term describes an important economic principle.

In the articleThe wage-price spiral was the mechanism that turned temporary supply shocks into persistent inflation in the 1970s.

Figurative Phrases

the cost of living

aggregate expenses — idiom; specific economic meaning

Etymology/Type: Idiomatic economics term; "cost of living" aggregates household expenses and is used as a standard economic index.

Synonyms: everyday expenses, what it costs to live, household costs

Example: She began tracking the cost of living carefully after moving out of home for the first time.

In the articleThe petrol cost more.

eat into savings

gradually reduce — idiom; savings aren't literally eaten

Etymology/Type: Metaphor from food consumption and erosion; just as eating consumes food, expenses consume savings - applied to gradually reducing accumulated wealth.

Synonyms: drain the savings, chip away at what's saved, gradually reduce reserves

Example: Rising prices had begun to eat into the savings she'd built up for university expenses.

In the articleIt's worth doing, because inflation shapes wages, savings, debt, government budgets, and the balance of economic life in ways that affect almost everyone.

tighten the belt

reduce spending — idiom; 'belt' figurative

Etymology/Type: Idiom from scarcity; when food is scarce, people wear their belts tighter (having less body fat), so the phrase means reducing spending due to financial hardship.

Synonyms: cut back spending, reduce expenses, spend less

Example: When the part-time shifts were cut, she had to tighten the belt and cancel the streaming subscriptions she didn't need.

In the articleThe petrol cost more, the groceries cost more, restaurants raised their prices, energy bills climbed.

the price of bread

common-goods index — idiom; often not about actual bread

Etymology/Type: Metonymy and economics; bread is the quintessential everyday item - historically used as an index of basic goods and consumer prices.

Synonyms: the cost of basics, everyday consumer prices, what essentials cost

Example: Politicians often invoke the price of bread to signal they understand the financial pressures ordinary people are facing.

In the articleThe petrol cost more.

feel the pinch

experience financial strain — idiom; no literal pinching

Etymology/Type: Metaphor from physical sensation; a sharp squeeze (pinch) is uncomfortable - applied figuratively to experiencing financial strain or economic hardship.

Synonyms: feel financial pressure, struggle with rising costs, notice the financial strain

Example: Students with part-time jobs and rising transport costs were really starting to feel the pinch by the middle of the year.

In the articleOver roughly eighteen months, the general price level in countries like Australia, the United States, the United Kingdom and most of Europe rose by amounts not seen since the early 1990s.

bake in

include as built-in — idiom; 'bake' figurative

Etymology/Type: Metaphor from cooking; something baked into a mixture is fixed, integral, and inseparable - applied to costs or consequences that are built into a system.

Synonyms: build it in, embed it, make it structural

Example: The teachers had baked in reflection time at the end of each lesson so it became a habit rather than an afterthought.

In the articleSustained inflation requires that something about the underlying money-and-goods balance has shifted in a way that keeps producing higher prices.

Confusing Words

monetary vs fiscal

These tools of economic policy are often confused because both involve government intervention, but monetary policy works through currency and credit while fiscal policy works through taxing and spending.

  • Monetary relates to the money supply and interest rates — the central bank uses monetary policy to control inflation.
  • Fiscal relates to government revenue and expenditure — governments use fiscal policy (taxation and spending) to stimulate the economy.

Source test: Monetary policy comes from central banks; fiscal policy comes from legislatures and treasuries.

compound vs compound

Compound has multiple meanings: as an adjective meaning 'made of parts combined,' as a verb meaning 'to add to,' and as a noun meaning 'a group of buildings.'

  • Compound (adjective) describes something made of multiple elements — 'compound interest grows faster than simple interest.'
  • Compound (verb) means to worsen or amplify — 'poor planning compounds the budget crisis.'

Grammar test: Use adjective compound before nouns, verb compound with objects, noun compound as standalone item.

divergent vs divergent

While divergent typically means 'moving apart,' in economics it often conflates with 'different' or 'varying,' which can obscure the directional meaning of growing distance.

  • Divergent (strict) means moving away from each other — 'inflation rates are divergent as economies separate.'
  • Different/varying is the weaker sense of non-alignment — 'these results are divergent but not necessarily drifting.'

Direction test: Use divergent when paths are moving AWAY from each other; use different for mere non-alignment.