The inflation rate measures the change in prices that average consumers face. It is important because prices are the foundation of all economic activity. When prices rise, it decreases the purchasing power of each monetary unit. Inflation can hurt some segments of society, while others benefit from the higher prices. Inflation can also affect people’s decisions about spending and saving.
To measure inflation, the Bureau of Labor Statistics combines price changes across a predetermined basket of goods and services. The items in the basket are representative of what most Americans buy on a regular basis. Each item is weighted based on the importance of that category in an average consumer’s budget, determined by surveys of households. The highest-weighted categories are shelter (including utilities and household operations), transportation and food. Other key categories include recreation and health care. Inflation is measured in percent, and the current price level is compared to the previous month’s price level.
Inflation rates vary from region to region in the United States. Because different populations have slightly varying consumption patterns, each area has its own inflation rate. USAFacts provides regional data on a variety of topics to make it easier for citizens to understand how their communities are faring.
Inflation is not always a bad thing, but how high it goes and how fast can affect people’s purchasing power, economic growth and even the interest rate charged on national debt. Some of the most common ways to control inflation are through monetary policy, tax cuts or spending.