Bitcoin is currently inflating at a 12.5% yearly rate
I'm not sure where you got that figure.
Basic math.
This year (2013) aprox. BTC1,312,500 will be minted, those are being added to the BTC10,500,000 minted until the end of 2012, so at the end of the year you will have around BTC11,812,500
That's a yearly inflation of 12.5%
In 2014 it should be around 11%, in the following years it will decrease until aprox. 9% (2016) until it falls to 4% in 2017 because of the next reward halving.
Yes, surprise, Bitcoin the deflationary currency its in a heavily inflationary phase and it will be for the next decade. Good thing is that the inflation is predictable and immune to third party manipulation.
Gotcha. What you referred to as inflation, I see as increase in supply.
I tend to think of inflation as a function of value, as in how much of a currency is required to buy something.
With fiat currencies, inflation is usually measured by indices covering everything from wages to fuel prices. It takes more USD each year to buy a gallon of gas or hire a laborer for an hour. Bitcoin is referred to as deflationary because it takes fewer and fewer coins each year to buy something, be it an ASIC miner, an American dollar or a pound of herbs.
You are talking about price inflation.
Rampion is talking about monetary inflation.
Both are correct uses of the term, and both talked about regarding fiat currencies.
Also, wages have not been keeping pace with food and energy price inflation, so it's hard to back up the claim that the price of labor is inflating.