Investors, the Federal Reserve, and businesses constantly monitor and worry about the level of inflation. Inflation—the rise in the price of goods and services—reduces the purchasing power each unit of currency can buy. Rising inflation has an insidious effect: input prices are higher, consumers can purchase fewer goods, revenues and profits decline, and the economy slows for a time until a steady state is reached.

The chart below gives a sense of how dramatically inflation can reduce purchasing power:

Source : Investopedia