During World War II, you could buy a loaf of bread for 10 to 15 cents, a new car for less than $1,000, and an average house for around $5,000. In the 21 st century, bread, cars, houses, and just about everything else cost more. A lot more. Clearly, we ’ ve experienced a significant amount of inflation over the last 60 years. When inflation surged to double-digit levels in the mid-to late-1970s, Americans declared it Public Enemy Number One. S ince then, public anxiety has abated along with inflation itself. B ut people remain fearful of inflation, even at the minimal levels we ’ ve seen over the past few years. A lthough it ’ s common knowledge that prices go up over time, the general population doesn ’ t understand the forces behind inflation. W hat is inflation? I nflation is defined as a sustained increase in the general level of prices for goods and services. I t is measured as an annual percentage increase. A s inflation rises, every dollar you own buys a smaller percentage of a good or service. T he value of a dollar does not stay constant when there is inflation. T he value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. F or example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. A fter inflation, your dollar can ’ t buy the same goods it could beforehand. T here are several variation on inflation: D eflation is when the general level of prices is falling. T his is the opposite of inflation. Hyperinflation is unusually rapid inflation. I n extreme cases, this can lead to the breakdown of a nation ’ s monetary system. O ne of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month! S tagflation is the combination of high unemployment and economic stagnation with inflation. T his happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices. I n recent years, most developed countries have attempted to sustain an inflation rate between 2% ~ 3%.