Inflation is a situation where there is a persistent rise in the general price level of goods and services in the economy. The general price levels refer to average price in the market. People have often confused inflation with high cost of living. If prices are high but stable, then it is high cost of living. But if prices are persistently rising then it is inflation. Inflation however leads to high cost of living when prices stabilize at high levels,

Inflation is divided into two types: Price Inflation and Monetary Inflation, the first type (about prices) is when there is a rise in the general level of prices of goods and services over a period of time, the second type (monetary) is when there is a rise in the quantity of money in an economy. Both types are in many times interrelated, and both have negative effects on the economy and individuals.