Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country.
Inflation is a rise in prices, measured over a certain amount of time. Inflation affects us because it means that over time, you can buy fewer things with the same amount of money. For example, now, you could buy 5 lollipops for $1. In five years' time, $5 might only get you 2 lollipops. The inflation rate is measured in percentages. If you hear something like inflation is 8%, it means that prices are 8% higher now than they were this time last year.
Why does it happen?
There are a lot of things that can cause inflation, and we refer to them as different types of inflation. One type is demand-pull inflation. This is when the demand for an item is greater than the ability to provide it. Limited edition toys or concerts with small seating numbers are good examples.
We also have cost-push inflation. This is when the price of materials or wages rises, and the price increase is pushed onto the customer. For example, the price of a cake could rise because one of the ingredients costs more, or because the baker is paying themselves a higher wage. In this case, a cake that used to cost $3 would now cost $3.80.
