Inflation rate is a key economic indicator. It can affect how much people spend on food, housing and utilities, how fast businesses grow and how much they pay their workers. Inflation can also impact the value of savings and investments.
The inflation rate measures how quickly prices rise for a basket of goods and services that are typically consumed by urban consumers. Government agencies like the Bureau of Labor Statistics produce a variety of price indices to help policymakers, business leaders and consumers track overall inflation trends. The Consumer Price Index (CPI) from the BLS is one of the most widely used and recognized indices.
Historically, low rates of inflation have been good for the economy. Rising prices allow money to buy more goods and services, thus increasing people’s purchasing power. But higher inflation can hurt, especially for people on fixed incomes, such as those saving to retire or pay off student debt. When prices rise faster than wages, those people lose purchasing power and have to cut spending or make more costly choices.
For this reason, many economists focus on a measure of inflation that excludes food and energy. It’s known as core inflation and is less volatile than the headline CPI. A recent report from the BLS showed that core inflation climbed by 0.2 percent last month, the most since January. The increase was largely due to higher prices for items that are currently exposed to tariffs, such as coffee and tomatoes.