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  • Writer's pictureKCStark

Inflation Hits 26-Month Low: A Quick 101 of Inflation and CPI

Inflation and the Consumer Price Index: A Quick Guide

Inflation is the rise in prices over time, reducing the value of money. The Consumer Price Index (CPI) measures this inflation by tracking price changes of goods and services consumers commonly purchase.

Key Points:

  • CPI Calculation: The CPI tracks a "Market Basket" of goods and services and compares prices periodically to measure inflation.

  • CPI-U: The CPI for All Urban Consumers represents the spending habits of about 93% of the U.S. population.

  • Base Year: A benchmark year is set for comparing price changes over time.

  • Impact: Inflation affects purchasing power, decisions by policymakers, businesses, and investors.

  • Managing Inflation: Governments and central banks use monetary policies to control inflation and maintain stability.

Tracking inflation's impact on your wallet

Inflation affects everyone, from the average consumer to businesses and the government. When prices rise, your money's purchasing power decreases, and you may need to spend more to maintain your standard of living.

It can also influence decisions made by policymakers, businesses, and investors.

Taming the inflation beast

Governments and central banks aim to manage inflation to ensure stability and sustainable economic growth. Central banks, like the Federal Reserve in the U.S., use monetary policy tools such as interest rates and money supply adjustments to control inflation. These measures aim to strike a balance between encouraging economic activity and keeping inflation in check.

Understanding inflation and the CPI helps us grasp the fluctuation of prices and its impact on our economy and daily lives. The beast of inflation is driven by our own hands and the fickel fingers of fate.

The U.S. isn't the only country contending with increasing prices that are squeezing household budgets—countries around the world are also grappling with inflation, and in most cases it’s worse.

The Federal Reserve has raised rates 15 times since March 2022 in its year-long effort to tame consumer price increases. Other central banks around the world are facing similar problems. Inflation in the U.K. came in hotter than economists had anticipated, rising to a 10.4% annual reading in February from 10.1% in January.


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