What is inflation?

Inflation is the rate at which the general level of prices for goods and services in an economy rises over time. As prices increase, each unit of currency buys fewer goods and services than it did before; consequently, inflation reflects a reduction in the purchasing power per unit of money.

Economists typically measure this by tracking a "basket" of common items (like food, housing, and transportation) to see how the total cost changes from month to month or year to year. While a small, stable amount of inflation is often considered a sign of a growing economy, high or unpredictable inflation can make it difficult for people to plan their finances and for businesses to set prices.