What is inflation and how does it affect the economy?

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of a currency. It occurs when demand for goods and services outpaces supply or when production costs rise, forcing businesses to pass those costs onto consumers. Inflation can affect the economy by reducing consumers’ ability to buy goods and services, which can reduce demand and slow economic growth. However, moderate inflation can be a sign of a growing economy, while hyperinflation, if unchecked, can lead to economic instability.