What does inflation represent?

Inflation represents the rate at which the general level of prices for goods and services is rising. This phenomenon indicates a decrease in the purchasing power of currency, meaning that as inflation increases, the same amount of money will buy fewer goods and services over time. Economists typically measure inflation through various indices, such as the Consumer Price Index (CPI), which track price changes across a broad range of products.

Understanding inflation is crucial for consumers, businesses, and policymakers, as it impacts spending, saving, and investment decisions. High inflation can erode savings and fixed income, while moderate inflation is often seen as a sign of a growing economy.