Inflation

Definition

Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time.

Example

If the annual inflation rate is 3%, a coffee that costs $3.00 today will cost approximately $3.09 next year. Your money buys slightly less than it did before.