Inflation is an economic term that refers to a sustained increase in the general price level of goods and services in an economy over time. When the inflation rate rises, each unit of currency buys fewer goods and services than before. In other words, inflation decreases the purchasing power of money. Inflation can be caused by a number of factors, including an increase in the supply of money in the economy, an increase in demand for goods and services, or a decrease in the supply of goods and services. A moderate level of inflation is generally considered desirable by many economists as it encourages spending and investment, but too much inflation can lead to economic instability and uncertainty.