Erosion of Purchasing Power 📉

Inflation is the rate at which prices rise over time. If inflation is 5%, your dollar buys 5% less than it did last year. It acts as a 'hidden tax' on savings.

Central Banks (like the Federal Reserve) try to control this by raising 'Interest Rates'. When rates go up, borrowing money becomes expensive (mortgages, credit cards), so people spend less. This 'cools down' the economy but risks causing a 'Recession' (economic shrinking).

Causes of inflation: 'Supply Chain Shocks' (factories closed), 'Stimulus' (printing too much money), or 'Energy Crisis' (oil prices spiking). 'Hyperinflation' is when this spirals out of control, making currency worthless.