A slew of factors can trigger inflation, including political instability and natural disasters. Inflation can be a good or bad thing, depending on the level and how fast it occurs. A moderate amount is generally positive for the economy and helps businesses thrive. On the other hand, higher levels of inflation lead to unpredictable boom and bust cycles that may make it difficult for consumers and businesses to plan ahead or adjust to rising prices.
Inflation is measured by comparing the value of a basket of goods and services from one period to another. The basket’s prices are weighted according to how much the average consumer purchases of each item in the basket. A price index can help government agencies, business leaders, and investors track overall price movements. The Bureau of Labor Statistics (BLS) publishes a variety of price indices, but the Consumer Price Index (CPI) is one of the most widely used measures to gauge inflation.
High levels of inflation can have a range of negative effects on the economy and individuals, from making it harder for families to afford basic necessities to eroding the real value of savings and investments. Rising prices can also exacerbate inequality and redistribute wealth, as lower-income households lose purchasing power while upper-class households gain it. In addition, the cost of borrowing tends to increase with inflation, which can make it harder for individuals and businesses to borrow money or take on riskier investment strategies.