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The rate at which the general level of prices for goods and services is rising.
Inflation is the gradual loss of purchasing power over time, measured as a percentage rate at which the general level of prices for goods and services is rising. When inflation occurs, each unit of currency buys fewer goods and services. A small amount of inflation (around 2-3% per year) is generally considered a sign of a healthy, growing economy, but hyperinflation can destroy a nation's wealth.
If the inflation rate is 5% per year, a basket of groceries that costs $100 today will cost $105 next year. If your salary doesn't also increase by 5%, you have effectively taken a pay cut in real purchasing power.