Imply
The verb 'to imply' means to state indirectly (i.e. to include a suggestion in a message).
Examples:
 His speech on transitioning to today's needs strongly implies that the typist pool will be made redundant.
Would I like a pack of mints? What are you implying?
I don't have bad breath, do I?
Infer
The verb 'to infer' means to deduce (i.e. to extract a suggestion from a message).
Examples:
The reader can easily infer that Sarah needs the money but is too proud to ask for charity.
Am I right to infer you think my team removed the safety valve? Is that what you're implying?
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TRANSMITTERS AND RECEIVERS
When you imply, you transmit an indirect message. When you infer, you receive the indirect message. What's an indirect message? An indirect message is the one said to be between the lines. For example:
Reading between the lines, I infer the MD is content with our performance, but he clearly implies the marketing section needs an overhaul.
People ask "What are you inferring?" all the time. The overwhelming majority of the time, this is wrong. If they're being stroppy, you can slam them with: "Inferring? I don't understand. Oh, I see. I was implying...."
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See also:
What are verbs?
List of easily confused words
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