Inflation

Inflation measures how prices change over time. Moderate inflation (around 2% annually) is considered healthy, as it encourages spending and investment. However, high inflation erodes purchasing power, meaning your dollars buy less over time. The Federal Reserve aims to keep inflation near 2% as measured by the PCE Price Index. Currently, key indicators in this category include 10-Year Breakeven Inflation Rate at 2.33%, Consumer Price Index (CPI) at 327.5, Core CPI (Excluding Food & Energy) at 333.5. (Source: FRED)

Key Relationships

CPI and PCE both measure price changes but differ in methodology. The Fed targets 2% annual PCE inflation (not CPI) when setting policy. Core measures (excluding food and energy) help reveal underlying inflation trends by removing volatile components. The 10-year breakeven inflation rate shows what bond markets expect inflation to average. (Source: BLS, Federal Reserve)

How This Category Connects to Others

Inflation directly influences the Rates category, as the Federal Reserve raises interest rates to combat above-target inflation. High inflation erodes Consumer purchasing power and can reduce real wages even when nominal wages are rising. In Housing, inflation affects both construction costs (materials and labor) and the real value of fixed-rate mortgage payments over time. (Source: FRED)