Inflation, often referred to as "ballooning," occurs when the general price level of goods and services rises over time. This means that each unit of currency buys fewer goods and services, effectively reducing purchasing power. Inflation can be caused by various factors, including increased demand, rising production costs, or expansionary monetary policies.
Central banks, like the Federal Reserve, monitor inflation closely to maintain economic stability. When inflation is too high, they may raise interest rates to cool down spending and investment. Conversely, if inflation is too low, they might lower interest rates to encourage borrowing and spending, aiming to stimulate economic growth.