Inflation is a sustained rise in the general price level. It means your money buys less over time. A dollar today does not go as far as a dollar ten years ago. Central banks aim for a low, steady rate, usually around 2 percent per year.

Inflation comes from two directions. Demand-pull happens when spending outpaces production. Too much money chasing too few goods. Cost-push happens when input costs rise, like oil or wages, and businesses pass them on. In practice, both forces often operate together.

Mild inflation is normal. It greases the wheels of the economy. High inflation is corrosive. It erodes savings, distorts decisions, and hits fixed-income households hardest. Deflation, or falling prices, can be worse. Central banks use interest rates to keep inflation in check.

Key concepts

• Consumer Price Index
• Core inflation, excluding food and energy
• Demand-pull vs. cost-push
• Hyperinflation
• Inflation targeting