What is Inflation?

Définition rapide

The rate at which the general level of prices for goods and services rises, eroding purchasing power. Measured by CPI.

Explication complète

Inflation is the percentage increase in the price level of goods and services over time. The Consumer Price Index (CPI) is the most common measure. At 3% annual inflation, $100 today buys $97 of goods next year, $94 the year after. Central banks (the Federal Reserve, ECB) target ~2% inflation as the sweet spot for economic growth without eroding savings too quickly. Inflation is a hidden tax on cash holders but a boost to borrowers (debts are repaid in cheaper future dollars). Real return on investments = nominal return − inflation. A 7% stock return with 3% inflation is a 4% real return.

Calculatrices liées

Calculators that use or explain Inflation.

Termes liés

CPI (Consumer Price Index)

More from Finances

APR (Annual Percentage Rate)

The yearly cost of a loan, expressed as a percentage, including most fees. Used when borrowing money.

APY (Annual Percentage Yield)

The yearly return on a deposit or investment, including the effect of compounding. Used when saving money.

Compound Interest

Interest calculated on the initial principal AND on the accumulated interest from previous periods. The engine of long-term wealth.

Simple Interest

Interest calculated only on the original principal, not on accumulated interest. Used in short-term and consumer loans.

Principal

The original sum of money borrowed or invested, not including interest. The base on which interest is calculated.

Amortization

Spreading loan payments over time so each payment covers both principal and interest, with the loan fully paid off at the end.

Last reviewed: June 15, 2026 • Category: Finances