Inflation has been in the news a lot, and you may have heard of other words ending in “flation” too. Shrinkflation, cheapflation, stagflation — so many flations to keep track of. We’re here to explain what these flations are and what they mean to you.

Inflation
Inflation. It’s hands down the most important flation of them all. Inflation measures the rate at which prices have gone up in the past year. Our job is to keep inflation at or around 2%, and we do that with our policy interest rate. Low, stable and predictable inflation helps Canadians and businesses plan for the future.

Disinflation
Disinflation. Disinflation is when inflation is coming down. But that doesn’t mean that prices are coming down — only that they are rising more slowly than before. If inflation is too high above the 2% target, disinflation is what we want. We use our policy interest rate to bring inflation back to 2%.

Deflation
Deflation. Deflation is when the prices of a lot of goods and services go down in a sustained way. When that happens, inflation is a negative number. That might sound like a good thing, but when prices are falling, people sometimes delay making major purchases because they expect that the goods they want to buy will be cheaper in the future. Deflation is often a sign that the economy is very weak. Falling prices can lead to a vicious cycle where jobs are lost and the economy weakens even more. And that’s not a good thing.

Cheapflation
Cheapflation. So, what is cheapflation? It’s when the prices of budget brands go up more quickly than the prices of more expensive ones. You may have noticed it at the grocery store or at the pharmacy, where the gap between the house brand and the name brand isn’t as wide as it used to be. Cheapflation hurts lower‑income shoppers the most, because they need the lower prices that budget brands offer.

Shrinkflation
Shrinkflation. Ever buy a bag of chips and notice it has fewer chips and more air inside — even though you paid exactly the same prices as before? That’s shrinkflation. Shrinkflation happens when the quantity of product in a package is reduced while the price stays the same — or even increases. Sometimes you don’t even notice the change in serving size, but shrinkflation is a subtle way prices can go up. You might not be paying more for the bag, but you’re paying more for each chip.

Stagflation
Stagflation. Stagflation is a combination of high inflation, a stagnant economy, and high unemployment. It happened in Canada in the 1970s after oil prices skyrocketed, and people had a lot less money to spend on other things. The economy slowed and the unemployment rate topped out at nearly 10%. It was only after a deep recession and a period of high interest rates that the economy fully recovered. Stagflation is a challenging problem for central banks. We can lower the interest rate to boost a stagnating economy, or we can raise the rate to bring down inflation, but we can’t do both at the same time.

Hyperinflation
Hyperinflation. Hyperinflation is exactly what it sounds like — a super‑fast and out‑of‑control increase in prices. Prices can rise by 50% in a single month, and the value of money goes down every day. When prices rise that fast, people try to find ways around the problem. They barter goods with each other to avoid using a currency that’s quickly losing value. And they rush to get their hands on foreign money — currencies that aren’t falling as fast. We have seen this happen in other countries, but we’ve never experienced hyperinflation in Canada. We use our policy interest rate to keep inflation at or around our 2% inflation target. And it works.

Conclusion
At the Bank of Canada, our goal is to keep inflation low, stable and predictable. We can raise our policy interest rate to bring inflation down when it’s too high, and we can lower it to stimulate the economy when it’s too low. This allows us to keep inflation at or around 2%, and that goes a long way towards preventing some other types of flations and the problems that come along with them.