The term «inflation» refers to a general price increase or devaluation of money. Inflation occurs when the prices of consumer goods increase steadily – as opposed to deflation, in which prices steadily decrease.
Because prices go up, money is worth less because it buys consumers less goods and services. In other words: Goods become more expensive.
A difference is made between mild or “creeping” inflation (0 to 5 percent devaluation per year) and severe inflation (more than 5 percent devaluation per year). Hyper-inflation refers to rapid devaluation of money in a short time-frame.
During times of sever inflation, investors turn to tangible assets such as real estate, commodities, precious metals or stocks to protect their wealth. Inflation-protected securities, like those issued by many states, are another investment option.
See also: Deflation