Inflation

Inflation is a measure of the change in the price level. It is the rate at which prices change, typically expressed as a yearly percentage increase.

Inflation can be caused by supply and demand changes or by government policies. Inflation causes a loss of purchasing power for consumers who hold fixed incomes (such as pensions) and investors who have fixed-income assets such as bonds.

The effects of inflation on investments are that the purchasing power of an investor’s money decreases over time, causing their real investment to shrink. This means it takes more money to buy the same goods and services.