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What is inflation?
Inflation refers to the money supply. Think of all money being air in a balloon. Inflation is what happens when you blow more air in the balloon. Deflation is what happens when you let air escape. Inflation may cause prices to go up. However there are many scenarios possible in which this does not happen. For example, at the same time of inflation, there might be unemployment, making consumers unable to pay higher prices. Or some important resource (oil) may go down in price (due to political reasons, war has ended etc), compensating for the money having less value.  Similarly, peoples wages will tend to rise over time. They have to, otherwise everyone would be earning less, due to inflation. However again there are many scenarios in which wages do not keep up with inflation, or rise much faster. In fact over the past 40 years or so, US wages have not been able to keep up with inflation, making the average worker 'poorer' than 40 years ago. At its core, inflation refers to the value of the money itself. As all values of other products, services, assets etc are expressed in terms of money which itself also changes value, this can quickly become very complex. Most countries calculate inflation by averaging the price change of a basket of goods that are supposed to represent the average Joe's spending pattern. However these methods are often criticized as they would be 'hiding' inflation. The hidden inflation may come back later to bite us.