Inflation refers to the increase in the general level of prices of goods and services in an economy over a period of time. In other words, it is the decrease in the purchasing power of money.

There are several factors that can cause inflation, including:

1. Increase in demand: When there is an increase in demand for goods and services, it puts pressure on the supply, which can lead to an increase in prices.

2. Increase in production costs: When the cost of producing goods and services increases, businesses may pass on the cost to consumers in the form of higher prices.

3. Increase in money supply: When there is an increase in the supply of money in the economy, it can lead to an increase in demand for goods and services, which can lead to an increase in prices.

Inflation can have both positive and negative effects on an economy. On the positive side, it can encourage investment and growth as businesses seek to take advantage of higher prices. On the negative side, it can lead to a decrease in purchasing power, which can hurt consumers and lead to a decrease in economic growth.

Central banks and governments use various tools to manage inflation, such as adjusting interest rates and controlling the money supply. The goal is to maintain a stable rate of inflation that is neither too high nor too low, as both can have negative consequences for the economy.