Inflation refers to the increase in the general level of prices of goods and services in an economy over a period of time. It is measured by the rate of change in the Consumer Price Index (CPI) or the Producer Price Index (PPI). When inflation occurs, the purchasing power of money decreases, which means that the same amount of money can buy fewer goods and services. Inflation can be caused by various factors, including an increase in demand, a decrease in supply, or changes in the cost of production. High inflation can have negative effects on the economy, such as reducing consumer and business confidence, increasing interest rates, and reducing the value of savings and investments.