Inflation is a rise in the general level of prices over time which decreases the purchasing power of a currency. It is measured using indices like the Wholesale Price Index (WPI), Consumer Price Index (CPI), and GDP deflator. There are two main types of inflation - demand-pull inflation caused by increased aggregate demand, and cost-push inflation caused by increased production costs. Governments use monetary policy like changing interest rates, fiscal policy like altering taxation and expenditures, and price controls to combat inflation.