Inflation

Inflation is when the prices of things you buy—groceries, gas, rent—go up over time, so your money buys less than it used to. You'll hear about inflation constantly in financial news because it affects everything: how much your savings are actually worth, whether companies can stay profitable, and what interest rates (the cost of borrowing money) the Federal Reserve sets. When inflation is high, your $100 doesn't stretch as far as it did last year. For example, if coffee costs $3 today but $4 next year due to inflation, you've lost purchasing power—the ability to buy the same stuff with the same amount of money. This matters to stock investors because high inflation can hurt company profits and change how attractive stocks are compared to bonds or savings accounts.