What is inflation?

Inflation is a general increase in the level of prices of all goods and services in a country. When the prices of all goods and services increase and these price increases start a process of continually increasing prices, a country suffers inflation. This is often referred to as an inflationary spiral.

Regardless of its various forms and official definitions we all know what inflation feels like. The money we have in our wallets can purchase less goods and services than before as prices increase. These continuous and wide-spread price increases simply confirm that inflation is present in an economy.

It is clear that the inflation rate of individual households can differ from the official rate of inflation. It is therefore important for all consumers to have an idea of their personal inflation rates. This will help them to plan their own budgets. It is also very important to keep the eroding effects of inflation on savings in mind, when making investment decisions.