What is the meaning of inflation rate?

Inflation rate is the rate at which the general level of prices for goods and services is rising and subsequently purchasing power is falling. Central banks attempt to limit inflation and avoid deflation in order to keep the economy running smoothly. Inflation is generally measured by the Consumer Price Index (CPI) or the Producer Price Index (PPI). An example of how the inflation rate affects you in real price terms is if the inflation rate is 2%, and you currently pay $100 for a basket of goods and services, then next year that same basket will cost $102 (assuming the inflation rate stays at 2%). This means that your purchasing power has decreased by 2% because the same amount of money now buys you less than it did before. Additionally, inflation can also have an impact on the value of money saved in bank accounts, as the interest earned may not keep up with the rate of inflation, resulting in a decrease in purchasing power over time.

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.

Similar Questions

Does quantitative easing cause inflation?

Quantitative easing (QE) is a monetary policy used by central banks to stimulate the economy by increasing the money supply. Some ...

What caused inflation in germany?

Fundamentally inflation is caused by too much money chasing too few productive uses of this money, inflation in 2022 however was m...

Who is helped by inflation?

Some inflation is good as it motivates savers to deploy their capital into the economy, however too much inflation negatively impa...

Ready to get started?

Download our app and start gaining insight into your current and future finances.