Inflation
Definition
Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Analogy
Think of inflation like a game of musical chairs. As more people (money) join the game but the number of chairs (goods) stays the same, there's going to be a scramble (price increase) when the music stops.
Related terms
Hyperinflation: This is an extremely high and typically accelerating inflation. It quickly erodes the real value of local currency as prices increase rapidly.
Deflation: This is a decrease in the general price level of goods and services. It's like reverse inflation - instead of too many people for not enough chairs, there are too many chairs for not enough people.
Stagflation: This term refers to persistent high inflation combined with high unemployment and stagnant demand in a country's economy. It’s like having a lot of players (money), few chairs (goods), but no one wants to play (demand).
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