A country’s inflation rate measures the change in prices for a basket of goods and services over time. Government agencies like the Bureau of Labor Statistics publish a variety of price indices to help policymakers, business leaders and consumers track and manage inflation.
Inflation is a problem when the growth of a nation’s money supply outpaces economic growth. This causes a loss in purchasing power for the general public. The monetary authority (usually the central bank) takes steps to control the money supply and keep inflation under control.
The best known measure of inflation in the United States is the Consumer Price Index (CPI) published by the Bureau of Labor Statistics. The CPI is based on the cost of a basket of products and services purchased by urban consumers. The basket is weighted by categories of items such as food, utilities, housing and transportation to reflect real consumer spending habits. The average unit price of a basket item is then tracked over time and the percentage change in that index is the inflation rate.
High inflation can have a number of negative effects on the economy including eroding the purchasing power of currency, making it more expensive for consumers to buy goods and services, making it difficult to plan long-term spending and raising borrowing costs for businesses. High inflation can also affect income distribution in a nation by affecting savers and workers unequally and it may interfere with international trade relations as it makes exports more expensive and imports cheaper.
