Inflation means that the things you buy were cheaper yesterday than they are today. Prices for everything, such as food, clothes, cars and holidays tend to go up year after year. This is called Inflation. If something was cheaper yesterday than it is today, then this is Inflation. The amount they go up by over a year is the Inflation Rate. So if your favourite breakfast cereal is 10% more expensive today than it was this time last year, then the Inflation Rate is 10%. So to understand what causes inflation let's look at my neighbour Suzy’s Lemonade Stand again . Suzy makes excellent Lemonade and that is because she buys amazing lemons from Leroy, our local lemon farmer. For months Suzy has paid Leroy £5 for a bucket of lemons each day. Leroy has a bit of a problem though. Everybody wants his lemons, but there is a big shortage of skilled Lemon pickers. To get the people he needs he must start offering higher pay. To find the extra money to cover these costs he decides to rai