When prices grow unevenly and some consumers' purchasing power declines, inflation's primary cost is the erosion of real income.
Inflation is the rate of price growth over a predetermined period of time. Inflation is sometimes quantified in generic terms, such as the general increase in prices or the increase in the cost of living across a country.
Inflation, or the long-term, widespread increase in the cost of goods and services, lowers purchasing power. A low but positive inflation rate is beneficial to the economy, but a high inflation rate has a propensity to get out of hand and impair the economy's long-term performance.
Consumer spending, company investment, employment rates, as well as government initiatives, tax laws, and interest rates are all impacted by inflation. Because inflation can lower the value of investment returns, understanding inflation is essential to successful investing.
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