Inflation is the decline of a specific currency's purchasing power over time. It’s calculated by measuring the cost of a basket of widely consumed goods and services in an economy.
Inflation reduces each unit of currency's purchasing power and increases living costs; consumers must spend more to fill a shopping basket or get a haircut. As prices rise, money buys less, so inflation can reduce living standards over time.
What is the inflation rate?
The inflation rate is the percentage that a currency devalues over time. The inflation rate measures a currency’s value change by comparing a list of standard products resulting in the consumer price index metric, the CPI (Consumer Price Index).
Governments and central banks attempt to control inflation to prevent recessions or economies from overheating. Central banks will adjust and maintain both the money supply and interest rates as part of a monetary policy.