1. Inflation: Inflation is the general increase in prices of goods and services in an economy over time. It erodes the purchasing power of money, as each unit of currency buys fewer goods or services. Inflation can be caused by various factors, such as increased demand, supply chain disruptions, changes in government policies, or excessive money supply.
2. Skewness: Skewness, in the context of finance and economics, refers to the uneven distribution of price changes or returns in a market or a specific asset class. It indicates the degree to which the distribution of returns is asymmetrical. Positive skewness means that there are more extreme positive returns, while negative skewness means more extreme negative returns.
When these two phenomena, inflation and skewness, combine, we get "skewflation." Skewflation occurs when certain goods or asset classes experience disproportionate price increases compared to others during a period of inflation. In other words, it is a situation where inflation affects different products or assets to varying degrees, resulting in an uneven distribution of price changes.
For example, during skewflation, the prices of essential goods like food, housing, or energy may rise significantly, while the prices of non-essential luxury goods may not increase as much or even decrease. This creates an asymmetric inflationary effect, where the prices of everyday necessities rise more rapidly than the prices of discretionary or luxury items.
Skewflation can have various causes, including supply and demand imbalances, market distortions, or specific government policies that impact certain sectors more than others. It can have significant implications for consumers, investors, and policymakers, as it affects purchasing power, investment strategies, and overall economic stability.
It's important to note that "skewflation" is not a widely recognized or established economic term, and its usage may vary in different contexts. However, it can be a useful concept to describe the uneven impact of inflation on different products or asset classes.
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