Inflation is the sustained increase in prices of goods and services over time. As inflation rises, your money becomes less valuable, and you can purchase fewer goods with it. Inflation has been a major concern throughout history, and central bankers often aspire to be known as “inflation hawks.” Government agencies like the Bureau of Labor Statistics publish price indices that are used by policymakers and investors to track overall price trends. In the US, one of the most well-known indices is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), while another popular measure is the Personal Consumption Expenditures price index (PCE) published by the Bureau of Economic Analysis.
In general, a small amount of inflation is good for an economy. This is because it allows for appropriate wage increases and keeps product prices in check. However, high levels of inflation can be a problem because it causes wages and products to outpace each other, making things unaffordable.
Inflation is also a challenge for companies because they need to keep up with rising input costs. For example, the price of raw materials such as coal and crude oil may rise, and this can lead to higher production expenses for manufacturers. Additionally, a decrease in the value of a country’s currency can increase inflation by increasing the cost of imported inputs. As a result, many businesses struggle to balance price hikes with customer demand.