The decline in the value, or purchasing power, of a currency over time. It is measured by the rate of increase in the average price level of a basket of goods and services in the economy. In the US, common measures of inflation are the CPI (Consumer Purchase Index), PCE Price Index (Personal Consumption Expenditure price index), and the PPI (Producer Price Index).
The Federal Reserve targets a long-run average of 2% annual inflation as part of its monetary policy goals for a stable economy.
Inflation is essentially rising prices. Higher inflation diminishes the value of your dollar, meaning over time, your money can buy less than it did before.« Back to Glossary Index