The inflation rate is the percentage increase in prices over a certain period. When prices rise, it reduces consumer purchasing power and can devalue a country’s currency. High inflation can lead to economic instability and is monitored by monetary policymakers. A financial advisor can help you create a plan to protect your investments against inflation. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. Interview your advisor matches for free to decide who is right for you.
To measure inflation, economists track price changes for a basket of economic goods and services, including food, utilities like electricity and transportation, and more. The most widely cited inflation measure is the Consumer Price Index (CPI), published monthly by the Bureau of Labor Statistics. Other popular measures include the Personal Consumption Expenditures price index (PCE), which takes into account a broader range of consumer spending, and the core consumer inflation measure, which excludes volatile energy and food prices.
Regardless of which measure is used, it is important to remember that inflation affects different consumers and businesses differently. For example, when prices for essential goods and services rise, consumers lose purchasing power, which may cause them to spend less or invest more, leading to a slower economy overall. In contrast, companies may find it harder to compete when their costs rise. If they can’t raise prices to match rising costs, they may go out of business. For that reason, it is important for businesses to monitor the impact of inflation on their bottom line.
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