1. Trigger
Demand or costs push prices
Inflation can begin with stronger spending, tighter supply, imported cost pressure, or a jump in expectations.
Concept
Prices
Price stability matters because almost every macro decision runs through it. Wages, savings, interest rates, debt burdens, and central-bank credibility all look different when the price level will not sit still.
The point here is not to memorize a definition. It is to see how the same concept opens into measurement, mechanism, disagreement, and policy once you start following it.
Macro map
Concept lane
Jump across macro lanes or open another concept without backing out of the page.
Overview
What prices is really tracking
Start with the clean read before opening the graph, model, or policy claim built on top of it.
A single price jump is not inflation. Macroeconomists look for broad, sustained movement in the general price level and then ask where it came from.
The answer matters because inflation driven by excess demand behaves differently from inflation driven by supply disruption, and both differ again from price movements rooted in expectations or financial stress.
Mechanism at a glance
Follow the mechanism before you open the graph or the model.
Broad price moves usually come from some mix of demand pressure, cost pressure, expectations, and policy response. The hard part is not knowing that prices changed, but identifying which transmission channel is doing the work.
2. Transmission
Pricing spreads across the economy
Firms reset prices, workers bargain over wages, and households start adjusting their plans around the new price environment.
3. Persistence
Expectations and policy decide the path
Inflation fades or persists depending on whether expectations stabilize, supply heals, and policy leans against the process hard enough.
Learning layers
Start with the idea, then choose the next layer that helps.
Some topics open through a graph, others through a mechanism, a model, or a disagreement. Use the prompts below to decide how you want to keep moving.
See the mechanism
Broad price moves usually come from some mix of demand pressure, cost pressure, expectations, and policy response. The hard part is not knowing that prices changed, but identifying which transmission channel is doing the work.
See how economists measure this
Look at CPI, core CPI, headline PCE, and core PCE together. Comparing them helps separate temporary commodity moves from broader inflation and shows which price index policymakers are likely to emphasize.
Open the model
AD-AS gives a fast visual language for demand and supply shocks. New Keynesian models push further by linking inflation to expectations, slack, and policy rules over time.
Read the debate
Inflation debates often split across competing diagnoses: excess money, excess demand, bottlenecks, cost shocks, bargaining conflict, or credibility and expectations.
Ask a harder question
When several inflation mechanisms arrive at once, how do you decide which one matters most for policy and which is just moving alongside the others?
Section
Inflation
Inflation is a sustained increase in the overall price level. It erodes purchasing power, changes real wages and real interest rates, and makes planning harder when it becomes volatile.
In practice, economists watch both current inflation and inflation expectations, because expectations can influence wage bargaining, price setting, and the persistence of the process.
See the graph
Put headline and core inflation side by side. The gap between them helps separate broad price pressure from narrower energy or food shocks that may fade faster.
Ask the harder question
When inflation is elevated, how much is coming from demand, how much from supply disruption, and how much from expectations or bargaining that may outlast the original shock?
Section
Deflation
Deflation is a sustained decline in the general price level. It can sound benign, but persistent deflation often coincides with weak demand, falling incomes, delayed spending, and heavier real debt burdens.
That combination is one reason central banks work to avoid deflation as actively as they avoid persistently high inflation.
Section
Stagflation
Stagflation combines weak growth, high unemployment, and rising prices. It is difficult because the policy tools used to cool inflation and support activity can pull in opposite directions.
The classic case is the 1970s, when oil shocks and weak output broke the simple idea that inflation only appears when the economy is booming.
Section
CPI, PCE, and What They Capture
The CPI measures out-of-pocket household spending using a fixed basket approach. The PCE price index is built from national accounts data and adapts more quickly as consumers substitute across goods.
That is one reason the Federal Reserve usually emphasizes PCE, while markets and households still pay close attention to CPI.
See the graph
Looking at CPI and PCE together tells you whether the inflation picture changes when the basket, weights, and data source change. That is often where policy communication starts to diverge from household experience.
Ask the harder question
When several inflation mechanisms arrive at once, how do you decide which one matters most for policy and which is just moving alongside the others?
Next step
Track the concept, then choose the policy route or model route worth testing.
The measures above are where macro arguments usually start. The next job is deciding which policy story, theory, or model best explains what the data is doing.
Watch the measure
Test the policy story
Open the deeper route
Sources & References
- Bureau of Labor Statistics. Consumer Price Index Overview. bls.gov/cpi.
- Bureau of Economic Analysis. Personal Consumption Expenditures Price Index. bea.gov.
- Federal Reserve. Why does the Federal Reserve aim for inflation of 2 percent over the longer run?
- Blanchard, O. Macroeconomics. Pearson, 2021. Chapters 8-9.