Finance
What Is Inflation?
Inflation is the rate at which prices rise over time, reducing the purchasing power of money.
Inflation is the general increase in prices across an economy, usually reported as an annual percentage change in a consumer price index. At 3% inflation, something costing $100 today costs about $103 a year from now — equivalently, each dollar buys slightly less.
Inflation is why "real" returns matter: a savings account paying 2% during 4% inflation loses purchasing power despite the growing balance. Long-term financial plans typically assume 2–3% annual inflation and subtract it from nominal investment returns.