What does inflation refer to?

Inflation specifically refers to a persistent rise in the price of goods and services over time. This phenomenon indicates that, on average, the cost of living is increasing, meaning consumers must spend more money to purchase the same items compared to a previous period. Inflation is often measured using indices such as the Consumer Price Index (CPI), which tracks changes in the prices of a basket of consumer goods and services. Understanding inflation is crucial for financial planning and economic policy, as it affects purchasing power, interest rates, and economic growth.