Inflation is measured as the annual percent change in the prices of goods deemed necessary for life in that country. The specific goods included in this "market basket" change only rarely, so this measure reflects fluctuation in purchasing power of the national currency. Source: International Monetary Fund.
High levels of inflation reflect a volatile economy in which money does not hold its value for long. Workers require higher wages to cover rising costs, and are disinclined to save. Producers in turn may raise their selling prices to cover these increases, scale back production to check their costs (resulting in lay-offs), or fail to invest in future production.