The inflation rate measures the percentage change in the price of a basket of goods and services consumed by households. It is calculated by statistical offices and other institutions based on extensive consumption surveys. It is a key indicator used to monitor the economy and informs economic policy. A low and stable inflation rate is generally considered a good sign, while high or rising inflation can lead to uncertainty and a loss of purchasing power.
Inflation erodes the value of money by increasing prices and by causing people to spend their currency faster. It can also increase the cost of borrowing and affect a country’s debt-to-GDP ratio. However, some inflation can be beneficial as it encourages consumers to buy sooner rather than wait for better deals. It can also help people in debt as it reduces the amount of interest paid on their loans, and can be beneficial to property and commodity owners who see the prices of their assets rise.
Several factors can cause inflation to vary, from a government printing too much money to natural disasters and wars that limit production capacities. Inflation can also be caused by structural issues, such as a lack of competition in certain sectors or markets. A general slowdown in the economy can also lead to higher inflation. Core consumer inflation excludes items such as food and energy that are affected by seasonal and temporary factors, allowing for a more consistent picture of inflation trends.