Inflation is the sustained rise in the general price level of goods and services, reducing money’s purchasing power over time. It is measured by indices like the Consumer Price Index (CPI) and driven by factors such as demand-pull (excess demand), cost-push (rising production costs), monetary expansion, or wage-price spirals.
While mild inflation (2-3%) can stimulate spending and reduce debt burdens, high inflation erodes savings, creates uncertainty, and may spiral into hyperinflation (e.g., Zimbabwe, Venezuela). Central banks, like the Federal Reserve, combat inflation using interest rates and monetary policies.
Post-COVID, global inflation surged due to supply chain disruptions and stimulus spending, prompting aggressive rate hikes in 2023–2024. Managing inflation remains critical for economic stability.