A rate of increase in prices for a basket of goods and services typical to the consumption of a country’s citizens, as measured over a given period. High rates of inflation reduce the purchasing power of a currency, which can hurt people and slow economic growth. There are a number of different ways to measure inflation, but the most popular is the Consumer Price Index (CPI). It tracks prices for a broad selection of goods and services, including food, housing, transportation and healthcare, as well as the overall cost of living.
Consumers are impacted most by high inflation rates, as their money buys less of what they need. This can slow economic growth as consumers hold off on spending and may delay making big-ticket purchases, such as appliances or new cars. Businesses can be affected too, as they need to keep their costs down or pass the cost increases on to their customers.
High inflation rates are generally seen as a bad thing, but it depends on how they’re handled. The goal is to control inflation so it doesn’t get out of hand and damage the economy. Governments and central banks use a variety of tools in their arsenal to manage inflation, like raising interest rates or constraining the amount of money that’s available. However, these actions can sometimes backfire and lead to deflation, which is a decrease in prices for all products and services over time. This can be a serious problem for an economy as it erodes the value of saved assets.
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