Inflation Calculator

What is inflation ?

Inflation is the rate at which the general level of prices for goods and services in an economy rises over a period of time. In simpler terms, it's the decrease in the purchasing power of a currency, meaning that over time, a unit of currency buys fewer goods and services.

Let's illustrate with an example:

Imagine you could buy a basket of goods and services for $100 last year. This year, due to inflation, the same basket of goods and services costs $105. This means that the rate of inflation over the past year is 5%. In other words, your $100 today buys you less than it did last year.

Now, let's say your salary remains the same over the year. Even though you're earning the same amount of money, you'll find that it doesn't stretch as far because prices have increased. This is why inflation erodes the purchasing power of money over time.

Inflation can be caused by various factors such as increased demand for goods and services, higher production costs, expansionary monetary policies (printing more money), or external factors like changes in exchange rates or the price of imported goods.

Central banks and governments often try to manage inflation to keep it at a stable and moderate level. Too much inflation can erode savings and reduce the standard of living, while too little inflation or deflation can hinder economic growth and investment. Therefore, maintaining a balance is crucial for the overall health of an economy.