Inflation is falling, but prices are rising: are we being lied to? No—sadly, this is normal! Saying that the price index is rising means that "the" function representing prices is increasing. The inflation rate, however, measures how that change itself changes. When the rate falls, prices are rising more slowly. Technically, if the price index is represented by a function f, then the inflation rate is related to its derivative f′.
As these graphs show, inflation really is falling even though prices are rising: the price-index curve is less steep at time t1 than at time t0. But the curve is still going up…
We might not make this mistake if we spoke instead in terms of speed and distance travelled. After all, everyone readily understands that even when you brake, you keep moving forwards.
