Inflation is the rise in price of goods and services. To stay even, you must invest at rates of return that at least match inflation rates. Your real rate of return, in terms of buying power of your money, is your savings or investments rate of return less the inflation rate. If inflation is 4 percent per year and your return is 5 percent per year after taxes you have managed only a 1 percent gain in real buying power. If your after-tax return is only 3 percent, you lose 1 percent in buying power.
Inflation occurs when demand increases relative to the supply available.
During periods of economic growth moderate inflation is expected. During hyperinflation hard assets like gold and real estate rise as they usually retain their value in inflationary times. Is inflation caused by rising prices of raw materials. When demand exceeds the supply of raw materials manufacturers pay higher prices. The manufacturers then charge merchants more for their finished products.