2.1 Inflation is a measure of how fast a currency loses its value. That is, the inflation rate measures how fast prices for goods and services rise over time. The inflation rate may increase due to massive printing of money, which increases supply in the economy and thus reduces demand. Equally, it may occur because certain important commodities become rarer and thus more expensive. The inflation rate is important to fixed-income securities, as the returns on these securities may not keep up with inflation, and thus result in a net loss for the investor. (The free dictionary) As CPI represents prices paid by consumers or households. Prices for a basket of goods are compiled for a certain base period. Price data for the same basket of goods is then collected on a monthly basis. This data is used to compare the prices for a particular month with the prices from a different time period. (Investopedia).When inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used. (World Bank)