In Singapore, it was reported that for 2008 as a whole CPI inflation is projected to come in at the upper half of the 4.5-5.5% forecast range. You might have heard news like this but really didn't know what inflation really means so you just didn't bother, right? Well, that's why I'm here. I'll try to explain inflation in the simplest way possible. With the definition above from Answers.com, if you're not in the business or financial industry you still might not be able to understand what inflation means. I guess the best way to explain inflation is giving an example. Now you know what inflation means. The value (or purchasing power) of our money has declined or depreciated!!! So how does this affect us? Well, I'm an independent financial adviser so I'll explain how inflation affects our retirement planning. Let's take for example my client, 25 year old Mr X. So there you have it. So if you hear that inflation rate is 3%, you would know that prices of goods and services would increase by 3% - meaning you have to pay 3% more. What's more worrying is if you hear that inflation rate has increased from 3% to 6%, because you'll be paying 6% more!!! Admin Edit: I've recently had someone write the article below that you might find helpful; Types of Inflation Please see descriptions of the major types of inflation below. Wage inflation - This is the typical situation in which supply exceeds demand (commonly referred to as the "demand-pull" occurrence, or "excess demand inflation"). When wage inflation occurs, the prices for the product or service increase, thus leading into the situation know as demand-pull. An example of this would be the dramatic changes in the economy during war. Pricing Power Inflation - Commonly known as the "Administered Price Inflation", this occurs when business and individuals raise their prices retrospectively to increase their profits. On a side note, pricing power inflation does NOT occur during economic depression or financial drops. Cost-Push Inflation - When an increase of price occurs in regards to the produce or maintenance of a service or product, the expected increase in price is the resultant effect. For an example, if a car manufacturer paid more for a vital part of an engine, the labour cost would decrease to counter the new price. Sectoral Inflation - This occurs when the price of one product directly affects the price of another product or service. For example, you take a daily bus to work. If the price of oil rose, the bus company would have to ensure that their profit margin was not lost by raising the fare for tickets. This type of inflation occurs generally across the retail aspect of the world, affecting prices when the production cost increases for example. Stagflation - The is the situation in which the inflation continues to rise despite the economy not following suit, in other words when prices rise even though the country is in recession. This type of inflation can have disastrous effects but is generally a short lived form of inflation as it could potentially lead to a financial crisis. In addition to the types of inflation described above there are also certain degrees of inflation, such as; Mild inflation being where there is a gradual but slow increase per annum in regards to the price. It can show the the economy is growing in size, thus generating more jobs. Strato-inflation can range from a low percentile to an extremely high percentile increase. Developing countries experience this, or have done in the past. Hyper inflation is an extremely accelerated form of inflation, occurring when the country imposing it is in desperate need of the money - either to pay debts, fund development and so on.