Inflation is an economic term used to refer to the general increase in prices of goods and services over time. It is usually measured as an annual percentage rate of change in prices. Inflation is caused by an increase in the money supply, an increase in government spending, or a decrease in taxes. When inflation increases, the purchasing power of money decreases, leading to higher cost of living.
Inflation is a sustained rise in the prices of goods and services over time. It is measured by an index such as the Consumer Price Index (CPI) or Producer Price Index (PPI). Inflation is caused by many factors, including changes in supply and demand, government policy, and currency devaluation.
When inflation rises, it decreases the purchasing power of money. This means that people with savings find their wealth eroding since they cannot buy as much with those same dollars due to rising prices. The opposite effect occurs when deflation takes place; consumers can purchase more with the same amount of money than before.
The impact of inflation on individuals depends upon whether they have additional income sources, such as investments or wages from employment, or rely solely on fixed incomes like pensions or Social Security benefits. Those who are retired or living off of fixed incomes often struggle to make ends meet during periods of high inflation because their incomes do not increase at the same rate as prices for basic necessities such as food and housing costs.