Inflation refers to the gradual increase in prices of goods and services over time. This means your dollar buys less today than it did yesterday. The Federal Reserve, America's central bank, targets a low and stable inflation rate, around 2% annually.
How is Inflation Measured?
The Consumer Price Index (CPI) is the primary gauge of inflation in the United States. It reflects the average price change for a basket of goods and services typical American households purchase. The Bureau of Labor Statistics calculates the CPI monthly.
Recent Inflation Trends
After a period of low inflation, the US experienced a surge in 2021 and 2022, reaching a peak of over 8%. This was attributed to supply chain disruptions and pandemic-related economic stimulus measures. As of May 2024, inflation has moderated to around 3.3%.
The Impact of Inflation
Inflation can erode purchasing power, reducing the value of your savings. It can also lead to uncertainty and impact business decisions. However, some moderate inflation is considered healthy for economic growth.
The Federal Reserve's Role
The Federal Reserve combats inflation by raising interest rates, which can slow down borrowing and spending. Conversely, the Fed lowers rates to stimulate the economy during economic downturns.
The Future of Inflation in America
The future trajectory of inflation in America remains uncertain. The Federal Reserve's monetary policy decisions, global events, and supply chain dynamics will all play a role.