What is inflation?
Inflation is basically this:  Over time, prices go up! I will now address the 3 points you have listed. Suppose over a period of 10 years, prices have doubled.  Now suppose 10 years ago I earned $100 and bought a nice pair of shoes.  Now today because prices have doubled I would have to earn $200 in order to afford the same pair of shoes.  Thus if I want to compare my earnings this year to 10 years ago, I will need to adjust for the price of goods going up.  That is, I could say that my $100 earnings 10 years ago is the same as having earned $200 today, or alternatively I could say that my earnings of $200 today is equivalent to having earned $100 10 years ago. This is a difficult question because a car is a depreciating asset, which means the real value of the car will go down in value over time. Let us suppose that inflation doesn't exist and the car you bought for $100 today will depreciate to $90 after 1 year (a 10% depreciation). But because inflation does exist, and all prices will be 0.5% higher in 1 years time, we can calculate the true selling price of the car 1 in year as follows: 0.5% of $90 = 0.005*90 = $0.45 Therefore the car will be $90 + $0.45 = $90.45 in 1 years time. If inflation is low, then the repayments do not get much easier to pay back over time because wages have not risen by as much.  Similarly the value of your underlying asset will not increase in value by as much. However as compensation, the interest rates on loans are usually lower when inflation is lower. Therefore generally it is better to get a loan in times of high inflation rather than low inflation, however it really depends on how the much the interest rates are relative to the inflation rate. When we speak about a product or service, we generally refer to its value. Currency, while neither a product or service, has its own value. As the value of currency goes down, the price of products bought by that currency will go up. You could consider the price of a product or service the value of the product multiplied by the value of the currency. For your first example, we compare two cars, one bought in 1990, and one bought in 2015. Each car has the same features (AC, radio, ABS, etc). We can say that, when these products were new, each had the same value. However, we can deduce that since the 1990 car cost $100, and the 2015 car cost $400, that there has been 75% inflation over 25 years. Comparing prices over time helps identify the inflation (or devaluation of currency) that an economy is experiencing. In regards to your second question, you can say that there was 7% inflation over five years (total). Keep in mind that these are absolute cumulative values. It doesn't mean that there was a 7% increase year over year (that would be 35% inflation over five years), but simply that the absolute value of the dollar has changed 7% over those five years. The sum of the percentages over those five years will be less than 7%, because inflation is measured yearly, but the total cumulative change is 7% from the original value. To put that in perspective, say that you have $100 in 2010, with an expected 7% inflation by 2015, which means that your $100 will be worth $93 in 2015. This means that the yearly inflation would be about 1.5% for five years, resulting in a total of 7% inflation over five years. Note that you still have a hundred dollar bill in your pocket that you've saved for five years, but now that money can buy less product. For example, if you say that $100 buys 50 gallons of gasoline ($2/gallon) in 2010, you will only be able to afford 46.5 gallons with that same bill in 2015 ($2.15/gallon). As you can see, the 7% inflation caused a 7% increase in gasoline prices. In other words, if the value of the car remained the same, its actual price would go up, because the value stayed the same. However, it's more likely that the car's value will decrease significantly in those five years (perhaps as much as 50% or more in some cases), but its price would be higher than it would have been without inflation. If the car's value had dropped 50% (so $50 in original year prices), then it would have a higher price (50 value * 1.07 currency ratio = $53.50). Note that even though its value has decreased by half, its price has not decreased by 50%, because it was hoisted up by inflation. For your final question, the purpose of a loan is so that the loaner will make a profit from the transaction. Consider your prior example where there was 7% inflation over five years. That means that a loan for $100 in 2010 would only be worth $93 in 2015. Interest is how loans combat this loss of value (as well as to earn some profit), so if the loaner expects 7% inflation over five years, they'll charge some higher interest (say 8-10%, or even more), so that when you pay them back on time, they'll come out ahead, or they might use more advanced schemes, like adjustable rates, etc. So, interest rates will naturally be lower when forecasted inflation is lower, and higher when forecasted inflation is higher. The best time to get a loan is when interest rates are low-- if you get locked into a high interest loan and inflation stalls, they will make more money off of you (because the currency has more value), while if inflation skyrockets, your loan will be worth less to loaner. However, they're usually really good about predicting inflation, so it would take an incredible amount of inflation to actually come out on top of a loan. 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. Money itself has no value. A gold bar is worth (fuzzy rushed math, could be totally wrong on this example figure) $423,768.67. So, a 1000 dollars, while worthless paper, are a token saying that you own %.2 of a gold bar in the federal reserve. If a billion dollars are printed, but no new gold is added to the treasury, then your dollar will devalue, and youll only have %.1 percent of that gold bar (again, made up math to describe a hypothetical). When dollars are introduced into the economy, but gold has not been introduced to back it up, things like the government just printing dollars or banks inventing money out of debt (see the housing bubble), then the dollar tokens devalue further. TL;DR: Inflation is the ratio of actual wealth in the Treasury to the amount of currency tokens the treasury has printed. I've seen a lot of long and complicated answers here so here is my simple and short answer: Let's say the economy consists of: 10 apples and 10$. Then an apple costs 1$. If you print 10$ more you have: 10 apples and 20$. Then an apple costs 2$. That is it! It's not what Kenshin said:  Over time, prices go up! However I would like to add something more on the topic: inflation is theft! If I hack the bank and steal 10% from each account it's obvious that it is theft. It's a bit less obvious when the government prints out money and people loose 10% of the value in their bank accounts but the end result is the same. Final note: some may disagree but I do not consider inflation when 5 of the apples rot and you have: 5 apples and 10$ and an apple now costs 2$. This is a drop in supply and if the demand stays the same prices will rise.
"Nothing necessarily has to ""benefit."" Right now, what primarily drives demand for gold is its perceived use as a hedge against the inflation of fiat currency. I.e. when inflation strikes, the price of gold goes up rapidly. Thus, for a given currency, gold decreasing in price is almost always a signal that the currency is increasing in value. However, it may be that at some point in time people everywhere just decide that gold is no longer worth using as an inflation hedge, and thus the price collapses simply because demand collapsed. No corresponding ""benefit""." "Personally I would have a hard time ""locking up"" the money for that very little return.  I would probably rather earn no interest in favor of the liquidity. However, you should find out what the early removal penalties are.  If those are minimal and you are very confident that you will not need the money over the term period then its definitely better to earn something rather than nothing. If inflation is negative you aren't out as much not getting any interest as you would be normally. Consider that in 2014 US inflation was 0.8%.  Online liquid savings accounts pay about 1%.  so that's only .2% positive.  In comparison at -.4% you are better off with no interest than a US person putting their money in a paying savings account.  Keep in mind though that inflation can change month to month so just because June was negative doesn't mean the year will be that way. Not sure your ability to invest in the US market or what stable dividend payers may exist in Sweden.... You said you are risk averse, but it may be worth it to find a stable dividend paying fund.  I like one called PFF, it pays a monthly dividend of 6% and over 5 years stock price is very stable.  Of course this is quite a significant jump in risk because you can lose money if markets tank (PFF is down over 10 years quite a bit).  Maybe splitting up the money and diversifying?" "Inflation is an attempt to measure how much less money is worth. It is a weighted average of some bundle of goods and services price's increase.  Money's value is in what you can exchange it for, so higher prices means money is worth less. Monthly inflation is quoted either as ""a year, ending on that month"" or ""since the previous month"".  As the values differ by more than a factor of 10, you can usually tell which one is being referred to when they say ""inflation in August was 0.4%, a record high"" or ""inflation in August was 3.6%"".  You do need some context of the state of the economy, and how surprised the people talking about the numbers are.  Sometimes they refer to inflation since the last month, and then annualize it, which adds to the confusion. ""Consumer Inflation""'s value depends on what the basket of goods is, and what you define as the same ""good"".  Is a computer this year the same as the last?  If the computer is 10x faster, do you ignore that, or factor it in? What basket do you use?  The typical monthly consumables purchased by a middle class citizen?  By a poor citizen?  By a rich citizen?  A mixture, and if so which mixture? More detailed inflation figures can focus on inflation facing each quntile of the population by household income, split durable goods from non-durable goods from services, split wage from non-wage inflation, ignore volatile things like food and energy, etc. Inflation doesn't directly cause prices to raise; instead it is a measure of how much raise in prices happened.  It can easily be a self-fullfilling prophesy, as inflation expectations can lead to everyone automatically increasing the price they charge for everything (wages, goods, etc). Inflation can be viewed as a measurement of the ""cost of holding cash"".  At 10% inflation per year, holding a million dollars in cash for a year costs you 100,000$ in buying power.  At 1% inflation it costs 10,000$.  At 0.1% inflation, 1000$. Inflation of 10% in one year, followed by 10% the next, adds up to 1.1*1.1-1 = 21% inflation over the two years.  For low inflation numbers this acts a lot like adding; the further from 0% you get the more the lower-order terms make the result larger.  1% inflation for two years adds up to 2.01%, 10% over two years 21%, 100% over two years 300%, 1000% over two years 12000%, etc.  (and yes, some places suffer 1000% inflation)" "You should also examine gross costs. The US per capita is paying twice what Canada does, and is getting worse results (lower life expectancy and higher infant mortality). Not exactly a bargain.  A significant part of the rate of increase in costs is likely due to the shifting demographics bulge of baby boomers aging. If you look at (these charts)[http://flatrock.org.nz/topics/money_politics_law/boom_moves_along.htm] you'll see that there's a a lot more folks in their 50's than before. And [""Nearly one-third of lifetime expenditures is incurred during middle age, and nearly half during the senior years""](http://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/).  In the report you linked ""The medical trend reported includes the increases in both price inflation and utilization for 2009""... so it's impossible to say how much medical inflation there actual was (i.e. is the cost of a flu shot rising faster/slower than inflation). Which makes the report a bit slimy in that it compares directly against the rate of inflation." "A bank is a technology that allows society to consume now at the expense of later.  Think about it this way: to consume later at the expense of now, all you have to do is save your stuff. If you want to eat pizza in a year, you can buy a bunch of pizza now, freeze it, then eat it a year later.  Or you can hide money under your mattress now, and buy pizza a year later from now.  But what if you want to eat pizza now, but you don't have the money to buy it? Well, you're stuck. There's no time travel: you can't go into the future and get resources from your future self to buy the pizza now with!  Well, you could go to your wealthy friend who has a lot of pizza, and say, hey, if you give me pizza/money now, I will pay you back with more later! Except then your ability to get pizza/money depends on the whims of some really wealthy people who may not like you. And what if your wealthy friend really wants to keep all of his pizza? There is nothing you can do to get it now.  A bank is an entity that can provide the resources/purchasing power for you to get your pizza now *without anyone in the economy eating less now as a result*.   It does this via what is known as ""Fractional Reserve Banking,"" which is pretty simple. I borrow $100 from person A, keep $10 in reserve, then lend the remaining $90 to person B, who deposits it back into his bank. I keep $9 of person B's deposit in reserve, then lend $89 to person C, who deposits it in the bank, and so on and so forth. The total amount of purchasing power I can create is $1000 out of the initial $100 I borrowed from person A. As long as all my depositors don't all try to get their money out at once, society can essentially ""cheat time"" by pretending there is $1000 in existence when in reality there is only $100. Thus I have increased the purchasing power of the economy now at the expense of later (when the loans have to be repaid), and no one has to stop consuming now for me to do it!  Note that this is not the typical academic answer. Neoclassical economists will say that banks are ""mere intermediaries"" between savers and borrowers.   They are wrong. Banks provide the ability to consume now at the expense of later *even if no one in society is saving now*. That means when there is lots of lending going on, that we have an economic boom. But when there is little to no lending going on, and people are paying back their debts, we don't have as much (if any) growth." There is inflation, but it's hidden through various mechanisms. What do you call housing price increases and wage declines? What do you call the fed essentially paying down the inflation with free money and prices still pressuring upwards? I get the sense there is a great underlying pressure for inflation to burst out from the fed's free money pressure chamber. For all our sake, I really hope the pressure chamber holds or I'm totally wrong in the first place. I've been thinking about this.  Here's what I came up with.  Please let me know what you think.    1. The whole world is on a FIAT money system.  The central banks were all easing together in a coordinated way.  So currencies remain relatively stable relative to each other.... Also, the price of goods isn't rising nearly as quickly as the money supply is being expanded because:   2. The growth of the internet/globalization are deflationary because skilled people in 'poor' countries have access to the global marketplace and are willing to produce far more per dollar than 'rich' country citizens.  3. The growth of inequality is deflationary.  As wealth concentrates at the top, there are fewer and fewer customers who can afford the products/services that are being mass produced.  So there's a mismatch between high supply and low demand.  4. A poor/slow economy (low spending, debt defaults and business/personal bankruptcy) is deflationary.  We treat credit as money, and when debt is wiped out so is the credit that we were accounting for in the money supply.  5. The money created over the last 10 years or so hasn't had a chance to 'trickle-down yet'... it's still tied up in financial market instruments (stocks, bonds, ETFs, etc.) held by, mostly, institutional investors until the next big bubble bursts.   So, there are many deflationary forces to balance out against the money creation. I believe it goes a little something like this: During period of inflation, all boats rise. Everyone get's richer, and gain control of more physical assets. During periods of depression, debts are being called due by those who gave out the loans (these few powerful men) that can't be paid, and so foreclosures and the like occur, giving the creditors control of the actual physical assets.  Basically you have to track physical assets instead of financial ones to see how the boom and busts are beneficial to the wealthy.