💸 What is inflation?
Why prices rise over time, and why your money buys a bit less.
Inflation is when prices slowly go up over time. A candy that costs 1 dirham today might cost a little more next year. So the same money buys a bit less than before.
Inflation is the general rise in prices across an economy, measured as a percentage per year, often with a consumer price index (CPI). Many central banks aim for about 2% a year. Inflation can come from demand growing faster than supply, from rising costs such as energy, or from a lot of money in circulation. High inflation hurts savers and people on fixed incomes. Central banks fight it mainly by raising interest rates, which makes borrowing more expensive and slows spending.
Inflation is a sustained increase in the general price level, tracked with CPI or the PCE deflator, with "core" measures excluding volatile food and energy. Drivers include demand-pull pressure, cost-push shocks (supply chains, energy) and built-in inflation through wage-price expectations. Monetary policy steers it with the policy rate and balance-sheet tools, working through credit conditions, asset prices and the exchange rate; anchored expectations are central to credibility. The Phillips-curve trade-off between unemployment and inflation is unstable over time. Hyperinflation, often defined as more than 50% a month, usually follows deficits financed by money creation.
⚡ Quick facts
- Many central banks target about 2% inflation a year.
- At 2% a year, prices double in about 35 years.
- In Zimbabwe in 2008, prices doubled roughly every day.