1. Measuring the Price Level and Inflation Principles of Macroeconomics Dr. Gabriel X. Martinez Ave Maria University

2. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation2 Introduction  What is the lowest price you remember for a can of Coke?  What is the current price?  Are we all poorer because of this?  How can we measure these changes?

3. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation3 Introduction  A market basket: –Describes all the things that a consumer purchases in a given time period called a base year. –The prices of items in the market basket are weighted by the importance of the item in the consumer’s purchase habits. –Example:  The one automobile purchased during the year enters at the price of the car, say $25,000.  The five cans of beans costing 99¢ each is entered as 5 X 99 = $4.95.

4. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation4  A market basket: –Describes all the things that a consumer purchases in a given time period called a base year. –The prices of items in the market basket are weighted by the importance of the item in the consumer’s purchase habits. –Example:  The one automobile purchased during the year enters at the price of the car, say $25,000.  The five cans of beans costing 99¢ each is entered as 5 X 99 = $4.95. Introduction

5. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation5 Introduction  A base year –is arbitrarily chosen as a reference point for the price comparisons.  A price index –compares the prices of the market basket in the base year with the prices of the same basket in a target (current) year. $ base year $ current year

6. Measuring the Price Level

7. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation7 The Consumer Price Index: Measuring the Price Level  Consumer Price Index (CPI) –For any period, … –…measures the cost in that period of a standard basket of goods and services (for an urban consumer) … –… relative to the cost of the same basket of goods and services… –…in a fixed year, called the base year.

8. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation8 The Consumer Price Index: Measuring the Price Level  Consumer Price Index (CPI)

9. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation9 Monthly Household Budget of the Typical Family in 1995 (Base Year) Item Cost (in 1995) Rent, two-bedroom apartment$500 Hamburgers (60 at $2.00 each)120 Movie tickets (10 at $6.00 each) 60 Total expenditure$680 Constructing a Hypothetical CPI

10. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation10 Cost of Reproducing the 1995 (Base-Year) Basket of Goods and Services in Year 2000 Item Cost (in 1995) Rent, two-bedroom apartment$630$500 Hamburgers (60 at $2.50 each)150120 Movie tickets (10 at $7.00 each) 7060 Total expenditure$850$680 Cost (in 2000) Constructing a Hypothetical CPI

11. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation11 The Consumer Price Index: Measuring the Price Level  Constructing the CPI –Pick a base year –Conduct the consumer expenditure survey to determine the base-year basket of goods and services –Measure the current prices of the base-year basket –Bureau of Labor Statistics (BLS) See Example in Excel sheet

12. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation12 Cost of Reproducing the 1995 (Base-Year) Basket of Goods and Services in Year 2000 Item Cost (in 1995) Rent, two-bedroom apartment$630$500 Hamburgers (60 at $2.00 each)150120 Movie tickets (10 at $6.00 each) 7060 Total expenditure$850$680 Cost (in 2000) Constructing a Hypothetical CPI The CPI in Base year = ____ The CPI in year 2000 = $____/$____ = ____ The cost of living increased by ___% from 1995 to 2000

13. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation13 The Consumer Price Index: Measuring the Price Level  Constructing the CPI –The CPI for a given period measures the cost of living for that period relative to the base year –The CPI is a price index.  Price Index –A measure of the average price of a given class of goods or services relative to the price of the same goods and services in a base year

14. Measuring the Inflation Rate: The rate of change in the price level

15. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation15 Inflation  Price Level –Measures the average level of prices.  It’s like distance.  Inflation –Measures how fast the average price level is changing over time.  It’s like speed. –Deflation: A situation in which the prices of most goods and services are falling over time so that inflation is negative.

16. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation16 See Excel Handout “Inflation: Market Baskets, Base Years, and Price Indexes”

17. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation17 Inflation  Rate of Inflation –The annual percentage rate of change in the price level.

18. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation18 Calculating Inflation Rates: 1972 - 1976 YearCPI 19720.418 19730.444 19740.493 19750.538 19760.569

19. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation19 Calculating Inflation Rates: 1929 - 1933 YearCPI 19290.171 19300.167 19310.152 19320.137 19330.130

20. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation20 See Study Guide, pp. 297-298 Problem 1, parts A and B

21. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation21 Adjusting for Inflation  Deflating a Nominal Quantity –Nominal Quantity  A quantity that is measured in terms of its current dollar value. –Real Quantity  A quantity that is measured in physical terms -- for example, in terms of quantities of goods and services. –To Deflate a Nominal Quantity: Go from Nominal to Real  Divide a nominal quantity by a price index (such as the CPI) to express the quantity in real terms.

22. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation22 Comparing the Real Values of a Family’s Income in 1995 and 2000 Year Real family income = Nominal family income/CPI 1995$20,0001.00$20,000/1.00 = $20,000 2000$22,0001.25$22,000/1.25 = $17,600 Nominal family income CPI See Example: Inflation and Senators’ Salaries

23. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation23 Adjusting for Inflation  Example –1930 Babe Ruth’s salary was $80,000 –1998 Mark McGwire’s salary was $8.3 million  CPI 1982 - 84 = 1  CPI 1930 = 0.167  CPI 1998 = 1.64 –Babe Ruth’s real salary = $80,000/0.167 = $479,000 in 1982-1984 dollars. –Mark McGwire’s real salary = $8.3 million/1.64 = $5.06 million in 1982-1984 dollars.

24. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation24 Adjusting for Inflation  Real Wage –The wage paid to workers measured in terms of real purchasing power. –The real wage for any given period is calculated by dividing the nominal (dollar) wage by the CPI for that period.

25. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation25 See Study Guide, pp. 297-298 Problem 1, parts C, D, and E

26. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation26 Adjusting for Inflation  Real Wages of U.S. Production Workers –An example: Nominal WagesCPI (1982 - 84 = 100)Real Wage 1970$3.230.388$3.23/0.388 = $8.32 1990$10.011.307$10.01/1.307 = $7.66

27. Year Nominal Senate Salary CPIReal SalaryCalculation 1945$10,00018.0$55,555 195012,00024.149,793 195522,50026.883,955 196022,50029.676,014 196530,00031.595,238 197042,50038.8109,536 197544,60053.882,900 198060,66382.873,264 198575,100107.669,796 199098,400130.775,287 1995133,600152.487,664 Salaries in the US Senate

28. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation28 Nominal and Real Wages for Production Workers’ 1960 - 2001

29. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation29 Adjusting for Inflation  Indexing –The practice of increasing a nominal quantity each period by an amount equal to the percentage increase in a specified price index. –Indexing prevents the purchasing power of the nominal quantity from being eroded by inflation. –For example, if inflation is 5%, indexed wages would increase by 5%.  Your real income would be the same.

30. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation30 Adjusting for Inflation  Indexing to Maintain Buying Power –An example: –Suppose Social Security gives you $1000 a month today. –You want to keep the purchasing power of that $1000, but inflation is 20% a year. –Then the payment should rise by 20% every year. 20011000 20021200 20031440 20041728 20052074

31. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation31 Adjusting for Inflation  Example –An indexed labor contract  Contract specifics –1st year wage = $12/hr –Real wage will rise 2 percent in the 2nd and 3rd year  CPI: Year 1 = 1.00; Year 2 = 1.05; Year 3 = 1.10  Year 2 wage –Step 1: raise real wage 2%. Real w 2 = w 2 /1.05  w 2 /1.05 = $12 x 1.02 = $12.24 –Step 2: index the nominal wage  w 2 = $12.24 X 1.05 = $12.85

32. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation32 Adjusting for Inflation  Example –An indexed labor contract  Year 3 wage –Step 1: raise real wage 2%. Real w 3 = w 3 /1.10  w 3 /1.10 = $12.24 x 1.02 = $12.48  w 3 /1.10 = $12 x 1.02 x 1.02 = $12.48  Because year 1 was the base year, all “real” numbers are “year 1” numbers. –Step 2: index the nominal wage  w 3 = $12.48 X 1.10 = $13.73  Because the CPI was 1.00 in year 1 and 1.10 in year 3, to transform a “year 1” number into a “year 3” number we multiply the year-1 number by 1.10.

33. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation33 Does the CPI Measure “True” Inflation?  1996 report by the Boskin Commission estimated that the CPI overstates inflation by as much as 1 to 2 percentage points a year.  Overstating Inflation –Would unnecessarily increase government spending.  Many programs increase spending at the same rate as inflation. –Underestimate the improvements in the standard of living.

34. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation34 Does the CPI Measure “True” Inflation?  Two Causes of the CPI Overestimation of Inflation –Quality adjustment bias.  Prices may rise due to an improvement in quality: the standard of living hasn’t deteriorated, but the CPI doesn’t capture this. –Substitution bias.  If prices rise (i.e., there is inflation), people may substitute expensive goods for cheaper ones: the standard of living is the same, but the CPI doesn’t capture this.

35. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation35 See Study Guide, p. 298 Problem 2

36. Inflation and Interest Rates

37. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation37 Inflation and Interest Rates  Nominal Interest Rate (market interest rate) –The annual percentage increase in the nominal value of a financial asset. –For example, Bank of America may say: “the APR on your savings account is 0.5%.”

38. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation38 Inflation and Interest Rates  Real Interest Rate –The annual percentage increase in the purchasing power of a financial asset. –The real interest rate on any asset equals the nominal interest rate on that asset minus the inflation rate. –Sure, the APR is 5%, but can I buy 5% more goods at the end of the year?

39. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation39 Inflation and Interest Rates  Inflation and the Real Interest Rate Real Interest Rate (r)  nominal interest rate (i) – the inflation rate (  ) More precisely,

40. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation40 Inflation and Interest Rates YearReal Interest = Nominal Interest – Inflation 19700.806.55.7 1975-3.35.89.1 1980-2.011.513.5 19853.97.53.6 19902.17.55.4 19952.75.52.8 20002.24.72.5

41. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation41 See Study Guide, p. 299 Problem 3

42. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation42 The Real Interest Rate in the United States, 1960 - 2001

43. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation43

44. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation44 Inflation and Interest Rates  Inflation, interest rates, and income redistribution: –Unexpected inflation will benefit borrowers and hurt lenders. –Expected inflation may not hurt lenders if they can adjust the nominal interest rates.

45. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation45 Inflation and Interest Rates If I expect  to be … I can make i to be … So that r is … 5.77.72% 9.111.12% 13.515.52% 3.65.62% 5.47.42% 2.84.82% 2.54.52%

46. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation46 Inflation and Interest Rates  Suppose I had $100 in 1949.  I saw a financial asset that paid 2% a year.  “Hmm,” I calculated, “at that rate, I will have $309.27 in July 2005.”  “I will be able to buy more than three times more goods.”

47. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation47

48. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation48 Inflation and Interest Rates  The problem is that I did not take inflation into account.  If the 2% was a nominal interest rate, inflation ate away my wealth.

49. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation49 Do you see why the financial markets love a low-inflation policy?

50. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation50 Inflation and Interest Rates  If instead I had asked for an indexed financial asset –(one that adjusted the nominal interest payment to changes in inflation, in order to keep the real interest payment constant at 2%)  my real wealth would have been protected, and I would have tripled my (real) wealth.

51. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation51

52. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation52 Inflation and Interest Rates  Fisher Effect –The tendency for nominal interest rates to be high when inflation is high and high when inflation is high and low when inflation is low. low when inflation is low.

53. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation53 Inflation and Interest Rates in the United States, 1960 - 2001

54. The Costs of Inflation

55. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation55 The Costs of Inflation: Not What You Think  Price Level –A measure of the overall level of prices at a particular point in time.  It is measured by a price index such as the CPI.  Relative Price –The price of a specific good or service in comparison to the prices of other goods and services.

56. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation56 The Costs of Inflation: Not What You Think  Changes in relative price do not necessarily imply a significant amount of inflation. –Conversely, inflation can be high without affecting relative prices.  To counteract relative price changes, government policy would have to affect the market for specific goods. –To counteract inflation, the government must use monetary and fiscal policy.

57. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation57 CPI% change in oil pricesInflationRelative price of oil 20001.20 20011.32 20021.40 The Costs of Inflation: Not What You Think  The Price Level, Relative Prices, and Inflation 8% (2000 - 2001)10%-2% 8% (2001 - 2002)6%+2%

58. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation58 The True Costs of Inflation  High inflation causes: –Unexpected Redistributions of Wealth –Interference with long-term planning –“Shoe-Leather” Costs –“Noise” in the Price System –Distortions in the Tax Systems –Volatility and the possibility of Hyperinflation

59. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation59 The True Costs of Inflation  Unexpected Redistribution of Wealth –Many wages are fixed (or set to grow at a fixed rate).  Inflation may reduce the value of the real wage, redistributing real income from workers to employers. –Interest rates are supposed to compensate for inflation.  But fixed-rate loans don’t.  In this case, inflation redistributes real income from lenders to borrowers.

60. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation60 The True Costs of Inflation  Interference with Long-Run Planning –Inflation makes the future unpredictable, and complicates: –Retirement planning –Investment and business strategies

61. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation61 The True Costs of Inflation  “Shoe-Leather” Costs –Suppose you hold cash. –If inflation is 0%, your cash will have the same purchasing power a year from now. –If inflation is very high, your cash will have very little value a year from now.

62. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation62 The True Costs of Inflation  “Shoe-Leather” Costs –If inflation is very high, your cash will have very little value a year from now. –You will prefer to put your cash in the bank, where it may earn enough interest to compensate for inflation. –Then you’ll have to go to the bank all the time to withdraw cash.

63. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation63 The True Costs of Inflation  “Shoe-Leather” Costs –The cost of the use of resources to economize on holding cash during periods of high inflation is called “shoe leather” costs.  You go to the bank more often, pay more fees.  You’ll want to get rid of your cash more quickly than what you would normally want.  Banks have to have to buy more ATMs and larger payment-processing systems.  More systems for accounting cash transactions.

64. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation64 The True Costs of Inflation  “Shoe-Leather Costs at Woodrow’s Hardware –Need $5,000 cash/day –May withdraw $25,000 on Monday or $5,000/day –Cost of a withdraw = $4/trip –Zero inflation:  Withdraw $25,000  Shoe-leather cost = $4/week

65. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation65 The True Costs of Inflation  “Shoe-Leather Costs at Woodrow’s Hardware –10% inflation  Withdraws $25,000 –Average cash holding/day = $15,000 –Cost of holding cash = $15,000 x 10% = $1,500  Withdraws $5,000 daily –Average cash holding/day = $5,000 –Cost of holding cash = $5,000 x 10% = $500 –Shoe-leather cost = $4/trip x 200 trips (50 wks) = $800 –Benefit of $1,000 > cost of $800

66. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation66 The True Costs of Inflation  “Noise” in the Price System –Suppose prices of milk rise: then quantity supplied of milk should rise. –But what if all prices rise, including the prices of the inputs to make milk? –Then quantity supplied of milk should not rise. –If inflation is unstable, how can we tell the difference?  Inflation is often unstable if it’s high.

67. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation67 The True Costs of Inflation  Distortions of the Tax System –Inflation, Indexation, and ---  Bracket creep  Capital depreciation allowance  Many provisions in the tax code are not indexed to inflation.  This means that the tax burden can change and/or rise with inflation.  This may discourage desirable activities, undermining the purpose of the tax code.

68. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation68 Hyperinflation  A Hyperinflation is an extremely high rate of inflation. –Say, 1000% per year. –Currency becomes quickly worthless. –Economic activity slows down or stops because it’s impossible to figure out what’s going on.

69. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation69 Hyperinflation  Well-documented hyperinflations: –Germany (23,000 percent per year in 1923), –The former Yugoslavia (20 percent per day in 1993) –Hungary (19 percent per day in 1945)… –More recently, Bolivia, Argentina, and Brazil have endured very high rates. Zimbabwe is a current case.

70. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation70 Hyperinflation CountryYear EndedDuration in MonthsAverage Monthly inflation Rate (percent) Austria19221147.1 Germany19231537.2 Russia19243757.0 Greece194413365.0 Taiwan19491730.7 Yugoslavia1989450.9 Brazil1990468.6 Georgia19941344.1 Zaire199436665.0 Source: Adapted from Pierre L. Siklos,”Inflation and Hyperinflation.” http://www.wlu.ca/~wwwsbe/faculty/psiklos/papers/oup.PDF http://www.wlu.ca/~wwwsbe/faculty/psiklos/papers/oup.PDF

71. Copyright c 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 19: Measuring the Price Level and Inflation71 What You’ve Learned Today  To measure the Consumer Price Index. –Terms: market basket, base year, price index.  To measure the Inflation Rate.  To adjust nominal quantities for the inflation rate.  The relation between real and nominal interest rates.  The costs of inflation.