What causes inflation and how does it impact purchasing power?

Inflation is when money loses its value, like your piggy bank gets lighter even though you didn’t spend anything.

Imagine you have a basket of toys, and every week, the price of each toy goes up, just like when the candy in the store costs more than it used to. That's inflation. It happens because there’s not enough of something people want, or too much money chasing the same number of toys.

Sometimes, a lot of people start wanting the same toy at once, maybe a new video game everyone loves. If there are only 100 toys but 200 kids want them, prices go up. That’s like demand going wild!

Also, if the factory that makes your favorite toy has problems, like a robot breaks down or it rains too much and the paint dries slowly, they can't make as many toys. That's called supply, and when it goes down, prices go up too.

If everything gets more expensive, your money doesn’t buy as much as before. It’s like having a smaller piggy bank, you still have the same number of coins, but each coin is worth less now. That's how purchasing power changes when there's inflation.