There are different schools of thought as to what causes inflation. The two most prevalent theories are the neo-classical theory that inflation is driven by increases in the money supply, often used to finance government spending and the neo-Keynesian view that inflation is the result of diminishing returns of productivity.

In economics, inflation is an increase in the general level of prices of a given kind in a given currency. Inflation is measured by taking a "basket" of goods, and comparing the prices at two intervals, and adjusting for changes in the intrinsic basket. Thus, there are different measurements of inflation, depending on the basket of goods selected. The most common measures are of consumer inflation, producer inflation and GDP deflators, or price indexes. The last measures inflation in the entire economy.