What term is used to define increasing prices that erodes purchasing power in an economy?

The term that defines increasing prices that erodes purchasing power in an economy is inflation. When inflation occurs, the overall price levels rise, meaning that consumers have to spend more to purchase the same goods and services they previously could have bought at lower prices. This decrease in the value of money directly impacts individuals' purchasing power, making it less effective as a medium of exchange.

In contexts like this, inflation is viewed as an economic phenomenon often measured by indices like the Consumer Price Index (CPI). Inflation can be caused by various factors, including demand-pull inflation, where demand exceeds supply, and cost-push inflation, where the costs of production increase leading to higher prices.

Other terms, such as deflation, stagnation, and disinflation, refer to different economic scenarios. Deflation indicates a decrease in price levels, which increases purchasing power. Stagnation suggests a period of slow economic growth accompanied by high unemployment, while disinflation refers to a reduction in the rate of inflation, not an actual increase in prices or a significant erosion of purchasing power.