Inflation occurs when the price of something goes up, and the purchasing power of your money goes down. For example, if inflation goes up, your grocery bill will increase for the exact same amount of groceries.
When inflation rises, your purchasing power decreases.
To keep prices from rising too quickly, Central Banks aim for an average long-term inflation rate of 2%. If inflation grows too fast, the cost of goods and services can quickly outpace what customers can afford.
Deflation can also be bad for the economy, it can stall growth as consumers ang onto their dollars and wait for prices to fall even lower.
The inflation rate can be measured by the Consumer Price Index (CPI). The CPI measures the price of a basket of goods and services that we all need, such as food, housing and healthcare. The CPI, published every month, is one of several key economic indicators experts use to judge the health of the economy.
Should you be worried about inflation? Let’s take a closer look.