Inflation is important because it affects how much people can buy.

So, what is inflation?

It's when prices for things like food, clothes, and services go up over time. When this happens, the money you have can buy you less than before. This means your purchasing power – or how much you can buy with your money – goes down.

Here’s How Inflation Affects Us:

1. Less Buying Power:

   • If inflation is at 3% each year, something that costs $100 today will cost$103 next year. This means, if you don’t have extra money, you can buy less with what you have.

2. Effect on Salaries:

   • If paychecks don’t go up along with inflation, then people can buy less with the same amount of money. For example, if someone makes $50,000 a year and prices go up by 3%, their money doesn’t stretch as far.

3. Shopping Habits:

   • When inflation is high, people may rush to buy things before prices go even higher. This can lead to more people wanting to buy the same items and can cause prices to rise even more.

How We Measure Inflation:

• Consumer Price Index (CPI): This is a tool used to see how prices change over time for a group of everyday items that people buy, like food and gas.

• Inflation Rate: To find out how much prices have gone up, we use a simple formula: $\text{Inflation Rate} = \frac{\text{CPI}_{\text{now}} - \text{CPI}_{\text{last}}}{\text{CPI}_{\text{last}}} \times 100$

Understanding inflation can help people decide when to buy things or how to prepare for future costs.