Inflation is the increase in the price of goods and services in an economy over a period of time. As costs rise, the value of the dollar falls because consumers are not able to purchase as much with a dollar as they once did. Inflation is measured by the consumer price index and the producer price index.

Inflation causes interest rates (the cost of borrowing money) to rise.

Investing in the stock and bond market does not protect the purchasing power of your money against inflation. Stock prices rise when product prices rise more quickly than production costs. Stock prices rise because of economic growth, not because of inflation.