What is inflation?

Inflation is a general, sustained rise in the overall price level of goods and services in an economy over time. It means each currency unit buys less than before. It's measured with price indexes (e.g. CPI, PCE) tracking baskets of typical purchases. A few items rising in price isn't inflation; inflation refers to broad increases economy-wide. Central banks watch inflation because steady, moderate inflation is normal, but high or erratic inflation can erode purchasing power. In short, inflation equals money losing value as the aggregate price level climbs over months/years.