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What Is Inflation?

December 2, 2021

Before we look at what inflation is, here’s an example of how you’ll see it in everyday life. If last year, a $5 bill got you five candy bars and this year it only gets you three candy bars, that might be a sign of inflation. When prices of goods increase and your money buys you less things than before, that’s inflation (or when the cost of living goes up—although candy might not be considered an everyday essential!). It’s usually demonstrated by a progressive rise in the cost of things.

So, why are we talking about it now? So far, inflation is something we’ve seen in parts of the world. Venezuela, for example, has the highest inflation rate in the world, which means even buying chicken is an expensive purchase for most households. This year, the United States is grappling with inflation. You might see it in the price of products you usually buy, or in services like delivery. The unenviable task of solving this problem lies with the Federal Reserve, an agency that can be thought of as the doctor to a country’s economy and money challenges. Inflation also happens when customers shop a lot, increasing the demand for goods while supply is low.

Have you noticed your favorite product increase in price?