Inflation
Plain definition
Inflation is a sustained increase in the general level of prices across an economy over time. As prices rise, each unit of currency buys fewer goods and services — inflation erodes purchasing power.
In economics
Moderate inflation (around 2% per year) is the explicit target of most central banks, because it greases wage adjustment and keeps economies safely away from deflation. Inflation redistributes wealth: it hurts savers and fixed-income earners while benefiting borrowers, who repay debts in cheaper money. Causes are classically split into demand-pull (too much spending) and cost-push (rising input costs like oil or wages).
Example
At 3% annual inflation, a basket costing 103 next year — and $134 in a decade. A worker whose pay rises 3% while prices rise 3% has gained nothing in real terms; one whose pay is frozen has effectively taken a 3% pay cut.
Inflation is often confused with a one-time price jump or with expensive individual items. Inflation means the general price level keeps rising over time — one expensive iPhone or a single oil spike is not inflation by itself. It is also not the same as the cost of living for a specific person, which depends on what they actually buy.