Inflation

Inflation is the rate at which prices for goods and services rise over time, eroding the purchasing power of each dollar. In the United States, the two most closely watched gauges are the Consumer Price Index (CPI), which tracks a fixed basket of goods and services bought by urban consumers, and the Personal Consumption Expenditures (PCE) index, the Federal Reserve's preferred measure because it adjusts more quickly as spending habits shift. Moderate, stable inflation is considered normal in a growing economy; the concern is when it runs persistently above a central bank's target, prompting interest-rate responses that ripple through mortgages, savings yields, and stock valuations.