What is the definition of inflation?

Inflation is defined as the rate at which the general level of prices for goods and services rises, which subsequently erodes purchasing power. When inflation occurs, each unit of currency buys fewer goods and services, indicating a decrease in the value of money. This is a key concept in economics and personal finance because it affects the cost of living and the real return on investments. Understanding inflation is crucial for making informed decisions about budgeting, savings, and investments, as it directly influences how much you can afford in the future with the money you have today.