Inflation means prices are rising across the economy. When inflation is 5%, something that cost $100 last year now costs $105. Your money buys less with each passing year — $100 today is worth less than $100 ten years ago. This erosion of purchasing power is inflation's most visible effect.
Causes of inflation: demand-pull (too much money chasing too few goods), cost-push (rising input costs like oil or wages), and monetary expansion (central banks printing too much money). Post-COVID inflation hit 9.1% in the US (June 2022) — the highest in 40 years — driven by supply chain disruptions, stimulus spending, and energy price spikes.
Central banks target 2% inflation (US, EU) or 4% (India) as the sweet spot — enough to encourage spending and investment, but not so much that it hurts consumers. Zimbabwe experienced the worst hyperinflation in modern history — prices doubling every 24 hours in 2008 — rendering their currency worthless.