inflation

in⋅fla⋅tion \in-ˈflā-shən\

–noun
a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services

That definition of inflation is provided by Merriam-Webster’s online dictionary. When the price level rises, the dollar (or other form of currency) is worth less. Each unit of currency buys fewer goods and services. This does not affect non-monetary values, such as real estate or possessions.

Inflation damages businesses. Inflation forces companies to hone in on gains and losses in profit, as opposed to bettering products and services. Higher prices in the economy means that wages and personal income are worth less. If employees demand higher wages to afford the inflation of goods and services, that company in turn may need to raise prices to afford the increase in payroll...which, in turn, requires more money for the consumers to afford the goods and services.

There are instances when the inflation rate of a country is negative, which is deflation. The decline in the supply of money and credit leads to deflation. This leads to an increase in the value of money, but a problem arises from this scenario. If gas costs $3.02 a gallon on Wednesday and you know that the price will drop tomorrow, will you buy gas today? It is a necessity for the majority of the country, but if you can afford to wait, would you save the 70¢? Would you buy something today if you knew it would be cheaper tomorrow?

While inflation can be deemed a catch-22, there are many factors that contribute to its rise and fall. The resources below delve deeper into the economical, political, and social aspects of inflation. The video below is a "humorous" and obviously biased satire aimed at explaining inflation.




Inflation
CIA World Factbook - The United States - Economy
Annual Inflation Rate Chart
What is negative inflation?