Biflation

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DEFINITION of 'Biflation'

The simultaneous existence of inflation and deflation in an economy. Biflation, while seemingly a paradox, results when inflation in commodity assets coexists with deflation in debt-based assets. Biflation typically occurs when a fragile economic recovery causes the central bank to open up the monetary spigots in a bid to stimulate the economy. This may result in higher prices for certain assets such as energy and precious metals, and declining prices for leveraged assets such as real estate and automobiles. The creation of the term "biflation" is attributed to analyst F. Osborne Brown, who introduced it in 2003.

BREAKING DOWN 'Biflation'

Biflation is a term to describe the state of the United States economy in the years after the Great Recession of 2008. The tenuous economic recovery from 2009 onwards was characterized by a high rate of unemployment and a moribund housing sector. This led the Federal Reserve to unleash trillions of dollars in monetary stimulus to jump start the economy, while pledging to keep interest rates low until 2014. As a result, while deflation was apparent in certain sectors such as housing, inflationary trends were evident in the prices of goods such as gasoline, food and gold.

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