What is Inflation?
Inflation is the rate at which the general level of prices for goods and services rises over time, reducing the purchasing power of money. Moderate inflation is normal in a growing economy; high inflation erodes savings.
Example
If inflation is 5% a year, a basket of groceries that costs $100 today will cost about $105 next year, so the same $100 buys slightly less over time.
Related terms
Interest Rate
An interest rate is the cost of borrowing money or the reward for saving it, expressed as a percentage. Central banks adjust benchmark rates to influence inflation and growth.
Recession
A recession is a significant, widespread decline in economic activity lasting more than a few months, typically visible in falling GDP, employment, and spending.
Compound Interest
Compound interest is interest calculated on both the initial principal and the accumulated interest from previous periods. Over time it produces exponential growth, which is why it is central to long-term investing.