The inflation rate is a percentage that describes how fast the prices of a basket of goods and services are rising. This information is collected by the Bureau of Labor Statistics and reported monthly. Generally, people care about inflation because it affects costs and their standard of living. Businesses carefully watch price changes, as they must recalculate cost projections and make other adjustments. It also impacts how taxes are collected, government spending and programs and interest rates are set. A low, steady or predictable rate of inflation is considered healthy for an economy because it provides relative price stability.
High or unchecked inflation reduces the value of savings. This hurts those who have accumulated wealth, especially pensioners or people receiving fixed incomes. The poor tend to suffer more from inflation because they spend a larger proportion of their budget on necessities like food and energy that increase with price spikes. It also reduces the purchasing power of their income and may cause them to seek out short-term jobs or loans at higher interest rates.
A high level of inflation can make a country’s currency less competitive, which hurts its exports and leads to lower economic growth. This is a big problem for countries in the Eurozone, where they cannot devalue their currency to restore their competitiveness. Inflation also distorts important relative price signals, making it difficult for people to make sound consumption, production and investment choices.
About the Author
