Inflation, Definition
Inflation refers to the rate at which the general level of prices for goods and services in an economy is rising. Inflation is measured by the Consumer Price Index and the Producer Price Index. As the cost of goods and services increases, the value of a currency falls because an individual won't be able to purchase as much with that currency as before. The annual rate of inflation has varied greatly over the last half century, ranging from nearly zero inflation to 23% inflation. The Fed actively tries to maintain a steady rate of inflation, usually 2-3%.