Inflation is the rate at which the general level of prices for goods and services is rising and consequently the purchasing power of currency is falling. The rise or the fall of price determines the inflation rate in a given economy and therefore also determines the purchasing power by consumers. When prices goes up then there is a decrease in purchasing power of money while when the prices down there is a corresponding increase in purchasing power of money. For this reason central banks strives to limit inflation, and avoid deflation, in order to keep the economy smoothly running.
