Inflation rates are a measure of the pace at which prices rise. They are typically expressed as a percentage and compared with some base year. There are many different measures of inflation, but the most popular in the United States is the Consumer Price Index (CPI), which tracks the prices of a set of goods and services that represent the average spending habits of the US population. The CPI includes both “headline” and “core” inflation, with the latter excluding food and energy prices as these can be more volatile and often reflect weather or supply chain issues rather than long-term trends.
In general, inflation causes prices to increase because there’s too much money circulating in the economy, and producing more dollars devalues them by making them worth less. This can occur because a central bank creates too much money, or when demand for goods and services rises faster than the economy’s ability to produce them. This is known as “demand-pull” inflation.
Alternatively, price increases may occur because of higher input costs, such as increased fuel prices due to a war or natural disaster. This is called “cost-push” inflation, and it can cause prices to rise all the way up the value chain to consumers.
Other factors may influence inflation, including the expectations of people that prices will continue to rise, which is sometimes referred to as “built-in” inflation. This can lead to workers demanding higher wages, which in turn drives up the cost of goods and services as companies raise their prices to cover the increased costs of labor.