ELI5 Inflation
Inflation! What is it and is it so bad?
Imagine you have one dollar. You go to a small shop. Yesterday, that one dollar could buy you one cookie. You were happy. Today, you go back to the same shop. The cookie is still the same size. Nothing about it changed. But now the cookie costs two dollars. Your one dollar is not enough anymore. That is inflation.
Inflation means that money slowly loses its buying power. Buying power means how much stuff your money can get you. When prices go up, your money feels smaller. It did not shrink in your hand. But it cannot do as much as before. Now imagine everyone suddenly has more money. The shop owner sees many people wanting cookies. But the shop can only make so many cookies each day. When lots of people want the same thing, the shop owner raises the price. This is one reason inflation happens. Too much money chasing too few things. Supply and Demand.
Another reason is cost. If it becomes more expensive for the shop owner to make cookies, prices go up. Maybe flour costs more. Maybe electricity costs more. Maybe workers need higher pay. The shop owner raises cookie prices to survive. That also causes inflation. Inflation usually happens slowly. A small amount is normal. It helps the economy move. People spend money instead of holding on to it. Businesses grow. Workers get raises. This is healthy inflation.
But too much inflation is a problem. Prices rise fast. Wages do not keep up. People feel stressed. Saving money feels pointless. Everyday things like food and rent become hard to afford. This is when inflation hurts. Governments and central banks try to control inflation. They do this by managing money. One big tool is interest rates. Higher interest rates make borrowing money harder. People spend less. Prices calm down. Lower interest rates make borrowing easier. People spend more. Prices rise. So inflation is not a monster. It is more like a slow leak in a balloon. A tiny leak is okay. The balloon still works. A big leak is bad. The balloon completely deflates.
In simple terms, inflation means things cost more over time. Your money buys less than before.