Inflation

Inflation is the general increase in prices over time, which means that money loses some of its buying power. When inflation happens, the same amount of money buys fewer goods and services than before. People experience it when everyday items like food, gas, and rent cost more than they did before — your money buys less than it used to.

If a basket of groceries costs $50 this year and $55 next year, that’s inflation. The amount of money (or income) does not change, but what it can buy does, thanks to inflation. Inflation creeps in when prices for everyday things start increasing steadily. It happens for a few big reasons: businesses pay more for materials, energy, or wages and pass those costs straight to end users. Or everyone suddenly wants to buy more stuff than shops can stock, so sellers hike prices. Sometimes governments print or pump extra money into the economy, making each dollar worth less. Supply shortages—like bad harvests or global disruptions—also lead to inflation, as they affect the supply. 

For common people, inflation means spending more on groceries, rent, and other day-to-day needs. Savings sitting in the bank shrink in real value if interest does not increase. A little inflation is normal, but too much hits hard. 

Governments measure inflation using the Consumer Price Index (CPI). They track how much more this basket costs year after year and report the percentage change as the inflation rate every year. As of late 2025, the US inflation rate hovers around 3% annually. Mild inflation (about 2%) keeps the economy growing by encouraging spending. High inflation hurts savings, makes budgeting hard, and pushes people to spend quickly before prices climb more.