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The rate at which prices rise and money loses buying power.
Inflation is the rate at which prices rise over time, which means each dollar buys a little less. It is usually measured by the yearly change in the Consumer Price Index (CPI). Most central banks target about 2% a year.
With 3% inflation, a grocery basket that costs $100 today costs about $103 a year from now.
Money sitting in an account earning less than inflation loses buying power. High inflation also pushes central banks to raise interest rates, which affects loans and markets.
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