Inflation, growth and the economy

AUSTERITY

Deliberate reduction of government deficits through spending cuts, tax rises, or both.

Contested because tightening into a weak economy can shrink output enough that the debt-to-GDP ratio fails to improve, which is the outcome it was meant to deliver.

CLASSICAL

Classical economics, the tradition running from Adam Smith and David Ricardo, which holds that markets left alone tend toward full employment.

Its assumption that supply creates its own demand is what Keynes attacked after the Depression, and the argument between the two framings still shapes policy debate.

CONFIDENCE

Consumer confidence: a survey-based measure of how households view business conditions, jobs and their own finances.

The Conference Board and the University of Michigan each publish one, and they can diverge. Confidence tracks spending loosely, since people report gloom while continuing to spend.

CORE

Core inflation: the change in prices excluding food and energy.

Those two categories swing on weather and geopolitics, so stripping them out gives a clearer read on the underlying trend. The Federal Reserve watches core inflation in the personal consumption expenditures index most closely.

DEFICIT

A shortfall - government spending exceeding revenue in a period, or imports exceeding exports in the trade balance.

Distinct from debt, which is the accumulated total of past deficits. A country can run a deficit while its debt shrinks relative to a fast-growing economy.

DEFLATION

A sustained fall in the general price level - inflation below zero. Money gains purchasing power over time.

Feared more than mild inflation because it encourages households to delay spending and raises the real burden of existing debt, which can deepen a downturn.

DOLDRUMS

The late-summer stretch when trading desks are thinly staffed, volumes fall, and prices drift.

Borrowed from the equatorial belt where sailing ships stalled. Thin markets move more on small orders, so a quiet August can produce outsized swings on ordinary news.

ELASTICITY

How much the quantity demanded or supplied of something changes when its price changes.

Demand for insulin is inelastic, since people buy it at almost any price. Demand for a specific brand of soda is elastic, since buyers switch. Pricing power, tariff effects and tax incidence all come down to this measure.

FISCAL

Describing a 12-month accounting year that need not match the calendar. The US federal fiscal year runs from October 1 to September 30.

Companies pick year-ends that suit their business, so retailers often close in late January after the holidays. Comparing two companies means checking that the periods line up.

HEADLINE

Headline inflation: the all-items rate, including food and energy.

It describes what households pay, so it drives public perception and wage demands. Headline and core can point in different directions for a year or more when energy prices move sharply.

INFLATION

The rate at which the general price level rises, so each unit of currency buys less than it did. Usually quoted as a year-over-year percentage change in a price index such as CPI.

Central banks in most developed economies target around 2% a year. The target is not zero because mild inflation gives policymakers room to cut real interest rates in a downturn.

At 2% inflation, $100 of purchasing power shrinks to about $82 over ten years. At 5%, it shrinks to about $61. Because the effect compounds, and because it falls hardest on people living on cash savings or fixed incomes, central banks are willing to slow the economy to bring inflation down by a few percentage points.

KEYNESIAN

The school following John Maynard Keynes, which holds that demand can stay too weak for too long and that government spending can fill the gap.

It dominated policy from the 1940s to the 1970s, lost ground when stagflation appeared, and returned after 2008 when interest rates near zero left fiscal policy as the main tool.

MARXIAN

Economic analysis in the tradition of Karl Marx, centered on class, labor and the tendency of capital to concentrate.

Distinct from Marxist politics. Marxian analysis of crises and of labor's share of income appears in mainstream work on inequality without the political program.

MONOPSONY

A market with a single dominant buyer, mirroring monopoly on the selling side.

Most often discussed in labour markets, where a dominant local employer can suppress wages below the competitive level.

OLIGOPOLY

A market dominated by a small number of sellers, each large enough that its decisions affect the others.

Firms may reach parallel pricing without any agreement, which makes oligopoly hard to police under laws aimed at explicit collusion.

OUTPUT

The output floor in bank capital rules, which limits how far a bank's own internal models can reduce its required capital below the standardized calculation.

It exists because two banks holding similar assets were producing very different capital requirements from their own models. The floor sets a minimum relationship between the two methods.

PAYROLLS

The count of jobs added or lost across an economy in a month, taken from employer surveys. In the US, non-farm payrolls.

Among the most market-moving releases, because employment feeds directly into the growth-versus-inflation judgement central banks are making.

RECESSION

A significant, broad-based decline in economic activity lasting more than a few months. Popularly shorthanded as two consecutive quarters of falling GDP.

In the United States the official call is made by the NBER's Business Cycle Dating Committee, which weighs employment and income alongside output - and often dates a recession long after it began.

SEASONALITY

A recurring pattern tied to the time of year rather than to the underlying trend.

Official statistics are usually seasonally adjusted so that a normal December retail surge is not mistaken for genuine growth.

SENTIMENT

The prevailing attitude of investors or consumers toward conditions, measured by surveys or inferred from positioning.

Often read contrarily: extreme optimism implies most buying has already happened, leaving little marginal demand.

STAGFLATION

The combination of stagnant growth, high unemployment and high inflation at the same time.

Awkward for central banks because the usual tools conflict: raising rates fights the inflation but worsens the stagnation. The 1970s oil shocks are the standard example.

In 1974, US inflation ran above 11% while unemployment rose toward 7% and output shrank. The standard central-bank response to one problem made the other worse: higher rates would slow inflation and deepen the downturn, and lower rates would support jobs and add to inflation. The episode ended only after rates were raised high enough to cause a severe recession in the early 1980s.

SURPLUS

The opposite of a deficit: revenue exceeding spending, or exports exceeding imports.

Persistent surpluses in one country require deficits somewhere else, which is why trade imbalances are inherently a multilateral question.

TROUGH

The low point of a business cycle, where contraction ends and recovery begins.

Like the peak, dated only in retrospect once enough data confirms the turn.

UNEMPLOYMENT

The share of the labour force without work but actively seeking it.

Can fall for a bad reason - people giving up the search leave the labour force entirely, which is why participation is read alongside it.

UTILITY

In economics, the satisfaction a person gets from consuming something.

Each additional unit usually adds less than the one before, an idea called diminishing marginal utility. It underpins demand curves, insurance, and why a fixed loss hurts more than an equal gain pleases.