Inflation occurs when prices rise and the purchasing power of money diminishes. This is often a good thing, as it encourages businesses to hire workers and expand production, leading to higher wages and economic growth. However, it can also harm savers and those who borrow money, as their cash deposits lose value while interest rates usually fail to keep pace with inflation.

During the COVID-19 pandemic, many countries experienced their highest inflation rates in decades. This was due to a combination of factors, including global supply chain disruptions, fiscal and monetary stimulus provided by governments and central banks in response to the pandemic, and price gouging.

The underlying cause of this inflation surge was likely cost push inflation, which is when companies pass increased production costs to consumers through higher prices without a change in demand for the goods they are selling. An example of this would be if copper prices rose, causing companies that use it to raise their own product prices. This type of inflation is often temporary, as business owners try to balance the benefits of higher sales with the loss in profitability that comes from raising prices.

When you are planning to reach your financial goals, it’s important to bake in a realistic inflation rate to ensure that your savings and investments will be able to keep up with rising costs. This is why it makes sense to invest your money in assets that are able to increase their values over time, such as stocks and real estate.