What is Inflation?

Inflation is a broad surge in the prices of goods and services across an economy, sector, or industry. A country experiencing inflation also sees the purchasing power of money gradually drop.

The US has three key inflation measures: the Consumer Price Index or CPI, the Producer Price Index or PPI, and the Personal Consumption Expenditures Price Index or PCE.

Those measures keep an eye on changes in the prices consumers pay and producers receive in businesses across the US economy.

Inflation stems from one of three causes: demand-pull inflation, cost-push inflation, or built-in inflation.

Demand-pull inflation is a price increase due to a supply shortage. On the other hand, cost-push inflation results from higher production costs in labor or raw materials. Built-in inflation occurs when workers demand a raise to maintain their living costs.

While it’s no good news to see money lose value to inflation, some inflation is often good for an economy. That’s because moderate inflation helps drive spending and investing, preventing a money’s value from fading away.

However, too much of it can harm the economy, which may lead to its collapse. That is why countries worldwide are taking steps to keep their inflation under control.