Inflation & Stocks

What inflation is, how it is measured, why moderate inflation is normal but high inflation hurts, and which companies tend to cope best.

What inflation is

Inflation is the general rise in prices over time. When inflation runs at 3% a year, something that costs $100 today costs about $103 a year from now. Your money buys a little less each year, which is why cash left under the mattress slowly loses value. Deflation, the opposite, means falling prices, and it can be just as harmful because people delay purchases and debts become harder to repay.

A little inflation is considered normal and even healthy in a growing economy. Problems start when it runs well above normal for long periods, or when it rises suddenly and unexpectedly.

Rising prices slowly shrink what cash can buy.

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