Inflation is an increase in the general price level.
It represents an increase in the cost of living or in one s ability to purchase goods and services. Inflation is often measured by the Consumer Price Index, or CPI, which is tracked by the government and shows the increase in price of a fixed basket of goods and services. Inflation is harmful to your standard of living. It s easy to understand the negative effects of inflation in the example where your salary remains fixed, but costs are rising. In this case, your cost of living increases while your income remains the same.