inflation

Inflation is a financial term describing a rise in the prices across the entire economy. The inflation in prices is actually caused by increase in the money supply (governments printing fiat money without any backing). The logic is very simple – more money chases the same amounts of goods and services. Inflation causes loss of purchasing power. If you can buy a gallon of gas for $3 today and a year later your $3 buy less than a gallon (the gas got more expensive) than your dollar loss some of its purchasing power.

Governments around the world use different indexes to measure the level of inflation, but these indexes usually exclude food and energy which are deemed to be volatile. It’s a general consensus that government indexes understate inflation in general.