What is inflation?

The price of goods and services—stuff you buy—isn’t constant; prices change over time. When prices go up, that’s inflation. During moments of inflation, it takes more money to buy products or services. This means that purchasing power goes down.

To measure inflation and purchasing power, economists look at a price index, often the Consumer Price Index (CPI), which measures the average price of goods at specific moments in time. Economists then compare changes in cost averages to figure out the rate in which they’ve gone up. That rate is the rate of inflation and is measured as a percentage.