The ECB – and most central banks – aims to achieve price stability. This includes avoiding a continuous rise or decline of the general price level. The former is referred to as inflation and the latter as deflation. Disinflation refers to a deceleration in the rate of price increases. Economists generally believe that price stability contributes to increasing the level of economic output and employment in the medium to long term.
Economists break down inflation into two different types. The categories are referred to as cost push and demand pull. The former refers to a rise in prices that is caused by an increase in input costs such as commodities and wages. The latter refers to a rise in prices caused by demand outstripping ...