The inflation rate is a key indicator of how fast prices are rising for goods and services, reducing the purchasing power of money. It’s important for consumers, businesses and investors to know about the inflation rate so they can plan accordingly.
Inflation affects a variety of things, including how much it costs to buy everyday items, the growth of wages and economic development. It also impacts taxes, government spending and programs, and the level of interest rates on national debt. A low, steady rate of inflation is generally considered positive for an economy because it signals healthy demand for goods and services.
To measure inflation, statistical agencies look at what is called a basket of goods and services that people use. This basket includes a wide range of items, from food and energy to clothing and cars. Every month, they check how much those items cost and compare them to the same items in a previous period. This gives them a monthly rate of inflation and an annual rate of inflation.
Several different measures of inflation exist, but the most popular in the United States is the Consumer Price Index (CPI) for Urban Consumers. This tracker focuses on what the average consumer spends on a typical shopping trip and records changes in the prices of those items from month to month and year to year. Other metrics focus on a different part of the economy, such as core consumer inflation, which excludes prices set by government and more volatile products such as food and energy.