What is Inflation?
Inflation is measured by tracking the price of a basket of goods and services over time. The two main measures are CPI (Consumer Price Index) โ what consumers pay โ and PPI (Producer Price Index) โ what producers pay. Core inflation excludes volatile food and energy. Most central banks target 2% inflation; rates persistently above or below this trigger policy responses.
Why it matters for investors
Inflation affects every economic actor: consumers (purchasing power), savers (real returns on cash and bonds), borrowers (real cost of debt), companies (input costs and pricing power), and central banks (interest rate decisions). Sustained high inflation forces central banks to raise rates aggressively, often triggering recessions. Sustained low inflation can signal weak demand.