Measuring inflationĬonsumers’ cost of living depends on the prices of many goods and services and the share of each in the household budget. Whatever the context, inflation represents how much more expensive the relevant set of goods and/or services has become over a certain period, most commonly a year. But it can also be more narrowly calculated-for certain goods, such as food, or for services, such as a haircut, for example. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. Inflation is the rate of increase in prices over a given period of time. What, then, is inflation, and why is it so important? 1 in the United States-by President Gerald Ford in 1974. Inflation was even declared Public Enemy No. Central bankers often aspire to be known as “inflation hawks.” Politicians have won elections with promises to combat inflation, only to lose power after failing to do so. Inflation has plunged countries into long periods of instability. It may be one of the most familiar words in economics. Inflation measures how much more expensive a set of goods and services has become over a certain period, usually a year
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