Inflation is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.
Think of inflation as a slow but steady erosion of your money's value. When inflation rates rise, each unit of currency buys fewer goods and services. This dynamic can have a significant impact on savings.
For instance, if you have money saved and the inflation rate is higher than the interest earned on your savings, the real value of your money diminishes over time. This means that what you could buy with your savings today might be more than what you could buy in the future, even if your savings' nominal value hasn't changed. In essence, inflation can reduce the purchasing power of your savings, making it crucial to seek investment or savings avenues that offer returns at least equal to or greater than the rate of inflation.