What is inflation in economics, with example?

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. This means that the purchasing power of a currency decreases as prices rise. For example, if a gallon of milk costs $3 this year and $3.20 next year, there has been inflation in the economy over that period of time. Inflation can be caused by a variety of factors, including an increase in the money supply, higher demand for goods and services, or a decrease in the supply of goods and services. High levels of inflation can have negative effects on an economy, such as reducing the value of savings, decreasing the purchasing power of consumers, and discouraging investment.

The effects of inflation are often not directly felt but are played out over a long time, especially long-term investments are vulnerable to inflation.


At Horizon65, we created a mobile app that enabled you to check the effect of inflation on your savings.

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