What is inflation?

Inflation is best defined as the rate at which prices for goods and services rise over a period of time. This increase in prices means that, generally, each unit of currency buys fewer goods and services than it did in prior time periods, indicating a decrease in the purchasing power of money. Understanding inflation is crucial because it affects everything from consumer spending to interest rates and overall economic health. High inflation can erode savings and make it difficult for individuals to afford everyday items, while moderate inflation is often seen as a sign of a growing economy. It’s important to note that inflation is generally measured using various price indices, such as the Consumer Price Index (CPI), which tracks price changes in a basket of goods and services over time.