The effect of inflation and recession on the budgets and character of academic institutions is examined. The seriousness of the problem is emphasized, and the rising costs are discussed in terms of the Higher Education Price Index (HEPI) constructed by Halstead. It is based on a detailed breakdown of expenditure categories and is the least dependent on ad hoc weighting systems. The HEPI's shortcomings are evaluated, such as the fact that it is dominated by movements in its treatment of fuel costs, and its consideration of salary policies and other budgetary decisions in colleges and universities. It is noted that what has made the recent inflation so destructive is that it has not been accompanied by any of the offsets that could be expected, such as rising levels of money income and rapid increases in the revenues received by federal and state governments. The problems associated with economic realities facing universities and their high academic expectations are assessed. (LBH)