Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation reflects a reduction in the purchasing power of money.

Inflation has a significant impact on the economy; Inflation affects all aspects of the economy, from consumer spending, business investment and employment rates to government programs, tax policies, and rates. Inflation has the following impacts on the economy.

Inflation causes the purchasing power of a currency to decline, making a representative basket of goods and services increasingly more expensive.
Inflation erodes purchasing power as an overall rise in prices reduces the purchasing power of consumers, as a fixed amount of money affords progressively less consumption.
Inflation harms the poor and needy as lower income consumers tend to spend a higher proportion of their income overall and on necessities than those with higher incomes, so they eventually have less of a cushion against the loss of purchasing power.
Prolonged inflation can lead to a wage-price spiral, where expectations of further inflation continue, and therefore a demand of larger wage increases continue. Consequently, employers must increase prices for sustainability, increasing costs for consumers. This leads to a vicious cycle.
Inflation makes it more difficult to meet liabilities, as more money is spent on consumption and acquiring essentials, leaving less funds available to meet liabilities.
In the long run, inflation can cause unemployment and job losses, as businesses layoff variable costs such as labour to service other expenses.