Inflation Rate
The inflation rate measures the percentage increase in the general price level of goods and services over a specific period.
Meaning in Practice
The inflation rate is typically calculated using indices such as the Consumer Price Index. It is reported on a monthly and annual basis. The figure reflects changes in purchasing power and cost of living.
Why It Matters
Inflation influences monetary policy decisions and interest rate settings. High inflation erodes purchasing power, while low inflation may signal weak demand. Maintaining stable inflation is a key objective for central banks.
Market Impact
Higher inflation can lead to rising bond yields and tighter monetary policy expectations. Lower inflation may support equities and reduce rate hike concerns. Currency markets react strongly to inflation surprises.
Example
If prices rise by 4 percent compared to the previous year, the annual inflation rate is 4 percent.