Understanding Inflation

Inflation is the rise in prices of goods and services over time, which reduces the purchasing power of money. It happens for several reasons: higher demand for products, scarcity of goods, or increases in the money supply.

The most common way to measure inflation in the U.S. is the Consumer Price Index (CPI), which tracks what everyday consumers spend. Economists also watch the Producer Price Index (PPI), which measures prices from the seller’s side.

Inflation affects everyone. As prices rise, your money buys less, which can impact daily life and long-term financial planning. To manage inflation, governments may regulate prices of essential goods, and the Federal Reserve controls the money supply to keep the economy stable.