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Glossary
Economics
beginner

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Also known as
CPI inflation

Inflation measures how much more expensive a basket of goods and services has become over a period, usually a year. Moderate inflation is typically a sign of a growing economy, but high or persistent inflation erodes the real value of savings and fixed incomes.

Central banks generally target a low, stable inflation rate — often cited around 2% — using interest-rate policy as their primary tool.

Examples

Purchasing power

At 6% annual inflation, $100 today buys about what $74 would buy in five years.

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