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Trifecta explains Inflation

The inflation rate is a calculation of how fast the price of goods and services is rising. Inflation is usually expressed as a number out of one hundred, or a percentage, like this: 3% or 3/100 per year. Two to three percent is a normal rate of inflation. World and central banks, such as the Bank of Canada, make adjustments in their prime lending rates and overnight rates, to speed or slow inflation small amounts at a time. The purpose of changing bank lending rates like home mortgage rates, is to keep inflation in check and not let it get out of control.

If the current inflation rate of our economy is 3%, then after one year the price of a hypothetical good or service will have risen from $1.00 to $1.03. This is a consumer number, meaning it relates to the cost of living for families and individuals. The cost of some goods and services will have gone up, while the price of other goods and services will have gone down, and some will have remained the same; however, the 'cost of living' will have increased by 3 cents on the dollar on average.

Citations
in·fla·tion (ĭn-flâ'shən)
n.
The act of inflating or the state of being inflated.

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

The American Heritage® Dictionary of the English Language, Fourth Edition. Houghton Mifflin Company, 2004. 22 Oct. 2009. .

in⋅fla⋅tion  /ɪnˈfleɪʃən/ Show Spelled Pronunciation [in-fley-shuhn] Show IPA
–noun
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation ).
2. the act of inflating.
3. the state of being inf