What is inflation?

Glossary definition: In the Austrian view, an increase in the quantity of money (and not the rise in prices, which is its consequence).

In plain words

In everyday speech “inflation” means a general rise in prices. The Austrian School keeps the older meaning of the word: inflation is an increase in the quantity of money; rising prices are its consequence.

When more money circulates without a matching rise in goods, each unit of money buys less. But prices do not all rise together or at the same moment: the new money is spent first by those who receive it first.

An example

By ELSTAT’s consumer price index, what cost €100 on average in 2002 cost €157 in 2025. In other words, a €100 note left in a drawer since 2002 buys today about what €64 bought then. Try your own amount in the calculator.

The Austrian viewInflation is not a natural event. Today money is issued by central banks and expanded by the banking system, and fiat money can be multiplied without limit. Those who receive the new money first, often the state itself and the banks, still buy at old prices; those who receive it last, wage earners, pensioners and savers, pay the new prices (the Cantillon effect). That is why the Austrian School sees inflation as a hidden tax and a redistribution.

In the original“Like any inflation, it is a process of redistribution, whereby the inflators, and the part of the economy selling to them, gain at the expense of those who come last in line in the spending process.”

Murray N. Rothbard, Man, Economy, and State with Power and Market, Chapter 12 — The Economics of Violent Intervention in the Market · 11. Binary Intervention: Inflation and Business Cycles · mises.org ↗

Definitions are from the site’s Glossary; the examples and the “Austrian view” are Praxeologos’s reading. Links to outside sources open in a new tab.