The inflation rate measures the average change in prices of a basket of goods and services over a specified time. A high inflation rate typically leads to a reduction in the purchasing power of a currency, while a low or declining rate is generally considered a positive indicator of economic stability.
Inflation is often measured through price indices, such as the Consumer Price Index (CPI) published by the Bureau of Labor Statistics. These indices are used by policymakers, business leaders, and consumers to track overall price changes over time. The CPI is also used to adjust income eligibility for government assistance programs, provide cost-of-living adjustments to workers, and adjust benefits for Social Security recipients.
As a general rule, consumers are the primary group to lose from inflation. Rising prices reduce the purchasing power of savings, meaning that consumers’ money doesn’t go as far and they can only afford a limited number of goods and services. This tends to cause household belt-tightening and pessimism about the economy.
On the other hand, inflation may also boost business sales and profits. As the cost of goods and services increases, businesses are motivated to increase output in order to keep up with rising demand. This may lead to wage and salary increases for employees, which can boost consumer confidence as well. In addition, high inflation can make a country uncompetitive with the rest of the world by making its exports more expensive than those of other countries.