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What is inflation?

Inflation is generally taken to mean persistent increases in the majority of prices in an economy. It implies an erosion of the real value (i.e. purchasing power) of a given currency with respect to the goods and services that consumers buy. If consumer price inflation is present in an economy, consumers will need more and more units of that economy's currency to buy the same basket of goods and services.

In practice, inflation in the consumer price area is measured as the increase in the consumer price index. In the Czech Republic, inflation is measured by the Czech Statistical Office (more details on inflation measurement in the Czech Republic are available on its website).

A reduction in the rate of inflation is referred to as disinflation.

A sustained decline in the majority of prices in the economy is termed deflation.

Prices of consumer goods and services are naturally affected by various influences and many of these influences are completely or largely outside the purview of central bank monetary policy. Since these influences can be particularly strong in some cases, for instance in the case of oil and natural gas, agricultural crops or goods and services with regulated prices, other price indices are used as well. One of them is adjusted inflation excluding fuels, which is an index of the non-food items of the consumer basket excluding items with regulated prices, administrative interventions and fuels.

Until 2002, the inflation target was set in terms of "net inflation". It is calculated as the growth in prices in the unregulated part of the consumer basket adjusted for changes in indirect taxes and for the abolition of subsidies.