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Inflation: Uncomfortably low
Inflation: Uncomfortably low

What it is: Inflation measures the rise of prices and the value of money. When inflation is high, money is worth less over time. Deflation, the opposite of inflation, occurs when prices fall over time.

Why it's important: Moderate inflation (between 1% and 2% annual rise in prices) is good for the economy, as it typically contributes to job and wage growth. Out-of-control inflation is dangerous, as money loses its value. Deflation is equally dangerous, because it typically leads to job loss and declining salaries.

Where we're headed: Despite rising energy prices in the past several months, inflation is hovering dangerously low. In fact, some economists are even watching prices carefully for just the opposite -- a deflationary period.

NEXT: Manufacturing: Still rocky
Last updated November 23 2010: 10:39 AM ET
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