Inflation

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of currency. It is typically expressed as an annual percentage. When inflation occurs, each unit of currency buys fewer goods and services, causing a decline in the currency’s value. Inflation can result from various factors, including increased demand for products and services, rising production costs, or expansionary monetary policies by central banks. Economists measure inflation through various indices, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI). While moderate inflation is a normal part of a growing economy, excessive inflation can lead to economic instability, erode savings, and distort investment decisions. Conversely, deflation, or negative inflation, occurs when prices decrease over time and can also harm the economy.