The inflation rate is the percentage change in a basket of consumer goods and services. This includes things like food, housing, transportation and healthcare costs. A little bit of inflation can be good for the economy because it means your money buys more, which can encourage people to spend more and drive growth. But too much inflation can cause problems, reducing your purchasing power. It can also lead to economic uncertainty, which can slow growth. The Federal Reserve tries to keep inflation at a healthy level by changing interest rates.
There are several ways to measure inflation, but most involve tracking prices over time. A common measure is the Consumer Price Index (CPI). The CPI measures changes in the cost of a basket of goods and services that people use everyday, including things like shelter, bread and books. The basket is updated regularly to reflect new products and services as well as old ones that disappear from the market. The CPI is then divided by the same basket in a previous month to give the annual inflation rate.
There are other measures of inflation as well, such as core inflation and producer price indexes. Core inflation tends to focus on underlying trends by excluding food and energy prices, which are often affected by temporary supply conditions. This gives a more accurate picture of the rate of inflation. Inflation can be caused by many different factors, ranging from war to the COVID-19 pandemic. These types of events can reduce the amount of goods companies can produce, which in turn causes higher prices for those items as consumers demand them.