Tukuk-OSInflation is a rise in the general price level — equivalently, money losing purchasing power. It is measured with a basket: a fixed representative shopping list (food, rent, fuel, transport, haircuts) re-priced monthly, so the CPI answers “what would yesterday’s basket cost today”. Two people experience the same headline differently because personal baskets differ — if you rent and drive, energy and housing inflation are your real numbers, not the average’s.
The arithmetic that matters is multiplication over years. At 3% a year, prices rise about 34% over a decade (1.03^10 ≈ 1.34) and double in about 24 years (Rule of 72 again). A salary that “stays the same” is being cut 3% annually; a 3% raise in a 3% year is flat. Modest rates compound into generational reshuffles: a pound at 2% for 50 years buys what 37 pence bought at the start — nobody voted for it and no line appears on a payslip, which is why inflation is called the tax without legislation.
Why central banks target about 2% rather than zero: a small positive cushion lets real wages and prices adjust without pay cuts (people fight nominal cuts but accept being under-raise), avoids deflation’s trap (if prices fall, delaying purchases becomes rational, spending drains, debts grow in real terms — Japan’s lost decades in a sentence), and keeps rates above zero so there is room to cut them in a crisis. Savers’ honest conclusion: cash is the safe place to keep money you need soon and the costly place to keep money you need late.