Inflation and Deflation,

The terms ‘inflation’ and ‘deflation’ are not easy to define. Different economists
have defined them in different ways. Crowther has given us the most simple and
useful definition of these terms. According to Crowther, “Inflation is a state in which
the value of money is falling, i.e, prices are rising”. So it is generally regarded that
during a period of inflation, the price level will rise. It is also described as a situation
where too much money chases too few goods resulting in an abnormal increase
of price level. Shapiro has defined inflation as “a persistent and appreciable rise in
the general level of prices”. And Harry Johnson has defined it as a “sustained rise
in prices”. However, we should remember one important point. That is, there can be
inflation even without a rise in the price level. This is known as ‘Repressed Inflation’.
Usually this happens during a war period. On account of many controls and rationing
that exist during wartime, prices will be kept under check. But the moment controls
are withdrawn, prices will go up. So the real test of inflation is neither an increase
in the amount of money nor a rise in prices, but the appearance of abnormal profits.
Whenever businessmen and producers make huge profits, it is a sign of inflation.