Inflation is the rate at which the general level of prices for goods and services rises, consequently eroding purchasing power. It's a critical economic indicator that affects everything from daily consumer choices to long-term investment strategies.

• Cumulative Effect: The cumulative effect of several years of inflation, even at varying rates, can lead to a significant increase in the overall price level.
• Wage Impact: When inflation outpaces wage growth, it can lead to decreased living standards.
• Ongoing Rise: A decrease in the inflation rate does not mean that prices are falling; it means they are rising more slowly. Prices will only fall if there is deflation (negative inflation rate).

Deflation, the decline in prices, is rare in modern economies. More commonly, we experience disinflation, which is the slowdown in the rate of price increases, or when inflation decelerates. While deflation is uncommon, it can still occur during severe economic recessions.

• Economic Stagnation: Consumers may delay purchases, expecting prices to fall further, leading to reduced economic activity.
• Debt Burden: The real value of debt increases, potentially leading to defaults and financial instability.
• Wage Pressure: Employers may reduce wages, further decreasing consumer spending power.

The U.S. has experienced inflation consistently over the past few decades, with occasional periods of disinflation. For instance, inflation rates might decrease from 3% to 1.5%, indicating disinflation, but prices still generally rise. Deflation is rare but occurred briefly during the 2008-2009 financial crisis.

Japan experienced a prolonged period of deflation starting in the 1990s, often referred to as the "Lost Decade." This period of deflation posed significant economic challenges, including stagnation and reduced consumer spending.

The European Central Bank aims for an inflation rate below, but close to, 2%. The Eurozone has experienced periods of very low inflation and occasional disinflation, especially in the aftermath of the 2008 financial crisis.