Inflation is a worldwide phenomenon that can have many causes. Gaining a deep understanding of its complexities can help you navigate economic changes with confidence and protect your finances as prices rise.

Almost everyone has experienced the pain of inflation, feeling that their money doesn’t go as far as it used to. While this may be partly due to lifestyle changes and longer-term economic trends, the real culprit is inflation – a global phenomenon in which the purchasing power of a currency declines over time.

The most common measure of inflation is the Consumer Price Index (CPI), which combines the prices of a “basket” of goods and services, such as food, clothing, utilities, transport and entertainment. Changes in the prices of these items are then compared with the price level in a given year to determine the rate of inflation. The CPI is a composite index, meaning that it includes the prices of all items, regardless of how often they are bought or consumed.

In the past, many governments used to try to control inflation by increasing interest rates and limiting the supply of money. However, these measures typically have only limited success, and have a number of negative side effects.

Businesses face complex challenges when facing high levels of inflation, including increased costs of raw materials and a reduced ability to pass these higher costs on to their customers. They must also balance the benefits of higher sales and revenue against the risk of losing market share.