Inflation Rate

In Depth

Inflation measures how quickly prices are rising across the economy. In the United States, two primary gauges track inflation: the Consumer Price Index (CPI), published by the Bureau of Labor Statistics, and the Personal Consumption Expenditures (PCE) price index, published by the Bureau of Economic Analysis. The Federal Reserve officially targets 2% annual inflation as measured by core PCE, which strips out volatile food and energy prices. When inflation runs above target, the Fed typically raises interest rates to cool demand; when it runs below, the Fed may cut rates to stimulate spending. For businesses, inflation affects input costs, pricing power, wage negotiations, and the real return on investments. High inflation compresses margins for companies that cannot pass costs through to customers, while moderate inflation can signal healthy demand. Hyperinflation — extremely rapid price increases — destroys purchasing power and economic stability, though it is rare in developed economies. Understanding inflation dynamics is essential for budgeting, contract negotiation, and long-term financial planning.