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What is Inflation?

The amount that a collection of products and services have increased in price during a specific time period, often a year, is measured by inflation. A loaf of bread that cost EUR2 a year ago and now costs EUR2.50 represents a 25% price rise (or rate of inflation).

A currency will lose buying power over time if it is prone to inflation. In other words, you would be able to spend the same amount of money on less products and services. When determining inflation, one compares the cost of a basket of all the products and services (such as clothing, food, insurance, housing, etc.) purchased during a certain time to the cost of the preceding period in order to determine the rate of growth or decline.


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