The term “inflation” has recently gained popularity in the investment world. We have seen a rise in market volatility, and the inflationary effect is being blamed for it. How does inflation affect your investments, and what is it? An economy-wide, long-term increase in the typical price of goods and services is referred to as inflation. The Consumer Price Index (CPI), which looks at the weighted average of prices of a basket of consumer goods and services like food, transportation, and health care, is a typical tool for measuring it.
The CPI measurement is significant because it determines the direction of the general price increase, which over time results in a decline in the purchasing power of money.