Markets
Inflation is the sustained rise in the general price level, measured by the consumer price index. It erodes the purchasing power of money; the ECB targets around 2 per cent a year.
Inflation refers to the sustained rise in the general price level. It is usually measured by the consumer price index, which tracks the price movements of a representative basket of goods.
When prices rise, the purchasing power of money falls: the same amount buys less later on. For judging an investment, the real return (after inflation) is therefore generally more meaningful than the nominal return alone.
The European Central Bank aims for an inflation rate of around 2 per cent a year across the euro area. Such moderate, stable price growth serves as a monetary-policy reference point, though in practice it is not always achieved.
Related terms
See taxes, dividends and allocation for your whole portfolio in one place.