Inflation is an economic concept where the average price of goods and services increases, leading to a reduction in the purchasing power of money, typically measured by a Consumer Price Index (CPI) as an annualized percentage change. This phenomenon is often attributed to fluctuations in demand, supply, or inflation expectations, impacting economies both positively and negatively. While high inflation can discourage investment and lead to shortages, a low and stable rate can help reduce unemployment and provide central banks with greater monetary policy flexibility.

Today, most economists advocate for a low and steady rate of inflation to prevent recessions and avoid the inefficiencies of deflation, a task usually managed by central banks through interest rate adjustments. Historically, the term "inflation" took on its modern meaning following events like the American Civil War, when an oversupply of banknotes led to currency devaluation, a relationship observed and debated by classical economists such as David Hume and David Ricardo.