Inflation usually happens when the economy is too buoyant, so that shortages of labour and materials become widespread, and prices in general rise. Then money starts losing its value. Typically an inflation-linked boom is followed by a bust. If prices rise faster than incomes, then people are worse off. As well, if interest paid on savings is less than inflation, then the interest is inadequate to compensate people for the fact that the value of their savings is being eaten away.
Inflation also does long-term damage to the economy.
When money doesn't hold its value, businesses and investors have more difficulty making contracts, especially where contracts have to last over time, eg employment contracts and borrowing. This discourages long-term, quality investment in the nation's productive capacity. Inflation was high during the 1970s and the 1980s, peaking at 18.4 per cent per annum in 1980. Since 1991, inflation has been low and stable. Expectations can affect inflation, at least in the short term.