What is Inflation?
Inflation is defined as an increase in the overall price of goods and services in an economy. When the general price level rises, each unit of currency purchases fewer products and services; hence, inflation equates to a loss of money’s purchasing power. Deflation, or a sustained reduction in the general price level of goods and services, is the inverse of inflation. The inflation rate, which is the annualized percentage change in a general price index, is the most commonly used metric of inflation.
Understanding Inflation
Prices for goods and services can always alter in a market economy. Some prices climb, while others fall. Inflation happens when there is a broad increase in the pricing of products and services as a whole, rather than just individual items; it means that you can purchase less for €1 today than you could yesterday. In other words, inflation depreciates a currency over time.
Certain pricing changes are more significant than others.
When determining the average price rise, the prices of things we buy more of, such as electricity, are given more weight than the prices of products we buy less of, such as sugar or postal stamps.
In order to calculate inflation, all products and services consumed by households are included, including:
ordinary things (such as food, newspapers and petrol)
long-lasting goods (such as clothing, PCs and washing machines)
services (such as hairdressing, insurance and rented housing)
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