Inflation
The rate at which prices rise over time, reducing money's purchasing power. Mild inflation is normal; high inflation is destructive.
Inflation is the rate at which the general price level of goods and services rises in an economy, reducing the purchasing power of money. It is typically measured by indices like the Consumer Price Index (CPI) or Personal Consumption Expenditures (PCE).
Mild positive inflation (~2% per year, the target of most central banks) is generally considered healthy. Sustained high inflation (above ~5%) erodes savings and disrupts long-term planning. Hyperinflation (above ~50% per month) is catastrophic.
Central banks use interest rates as their primary tool to manage inflation. Investors typically need real returns above inflation to grow real wealth — making inflation a key consideration in long-term financial planning.