When prices rise quickly and unevenly, people’s purchasing power decreases. That’s the essence of inflation, which is why it’s so important to understand how it’s measured, calculated and reported on by governments and businesses.
The main measure of inflation is called the Consumer Price Index, or CPI, which looks at a basket of goods and services like food, clothing and entertainment in major cities. It subtracts the starting price (known as A) from the ending price (B) and divides by the starting number to get the percentage change in prices over time. It’s easy enough to do for a single good, but the challenge is measuring overall price changes across many different types of goods and services.
A variety of factors can cause inflation, including rising money supply, high raw materials costs, labor mismatches and global supply disruptions exacerbated by geopolitical conflict. Inflation rates can also spike as companies pass along increased input costs to end consumers. McKinsey experts refer to this as cost-push inflation and describe it as a threat to margins, which can make it difficult for companies to invest in growth.
It’s important to know what the inflation rate is before investing, as it can give you a sense of whether or not your investments are growing at a healthy pace. BPC’s research combines principled ideas from both parties to promote health, security and opportunity for all Americans through rigorous analysis and painstaking negotiation.
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