Inflation rate is a measure of the change in prices for a basket of goods and services over time. Government agencies like the Bureau of Labor Statistics publish price indices for different types of consumer goods and services that allow policymakers, business leaders, and consumers to track overall price changes. The most commonly used is the Consumer Price Index (CPI) which tracks a broad set of items that urban consumers purchase out of pocket, including commodities such as food grains and metal, utilities like electricity and transportation, and services like healthcare, entertainment, and leisure.
The underlying causes of inflation can be good or bad for the economy, depending on how they are managed. For example, cost-push inflation happens when high input costs (like oil and natural gas) push up the prices of final goods and services that are a result of those higher prices. This type of inflation can have negative effects on the economy as it makes companies less profitable and erodes the purchasing power of consumers.
On the other hand, low and controlled inflation can be beneficial to the economy as it increases spending and boosts economic growth. It can also help lower-income households who struggle to cover the rising cost of basic necessities and can create opportunities for businesses to increase profit margins.
It’s important to understand how inflation affects your financial life so you can better plan and reach your financial goals. For example, the interest you earn on savings accounts often won’t match or even exceed the inflation rate. That’s why it can make sense to invest money into assets that will grow at a faster pace than the inflation rate and help you achieve your financial goals more quickly.
About the Author
