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The term inflation is used for an overall increase in the price of goods and services in the economy. Inflation is most commonly estimated by looking at the change in certain price indices. These indices are created to estimate inflation and contain all goods and services generally used by consumers with an appropriate weightage given to each item that reflects the quantity consumed. Inflation over a year can be calculated by looking at the percent change in the present value of the index from the value it had a year back.
A positive inflation indicates that the average price of things in the economy is rising. It means that a person with the same amount of money can now buy less than what could have been bought a year back. High rates of inflation rapidly decrease the buying capacity of money. In such a case an industrial workers' capacity to buy products would rapidly decrease and even an increase in wages would only allow them to buy what they could earlier, nothing more.
Government policies should always be such that the rate of inflation is positive though at a fairly low level.
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