Money serves the purpose of a means of payment. It is a unit of account in terms of which the value of goods and services is measured. It also serves as a store of value for the savings of the community. These three functions of money make it essential that the value of money shall remain as stable as possible. No modern market economy can function well if its currency continuously loses value.
Inflation is a continuous decline in the value of money.
This will be reflected in ever-increasing prices of all goods and services. For the people of a country to have faith and confidence in the value of the money they use, it is important that price inflation should be contained at its lowest possible level. Low or zero inflation does not imply that the prices of goods and services will not change at all. Prices in a market economy will always change in response to changes in relative scarcities. Low inflation means that the continuous rise in the general price level, i.e. in the prices of all goods and services, drops so low that it no longer influences the decisions of consumers and producers.