A country’s inflation rate is a key measure of economic stability, and it influences everything from consumer spending to interest rates to the cost of a nation’s debt. It is typically measured using a country’s price indices such as the Consumer Price Index (CPI).
Inflation is generally considered to be a positive economic phenomenon because it increases prices in a relatively steady manner, thus making it easier for consumers and businesses to budget. In addition, stable inflation reduces uncertainty about future price trends, lowers market interest rates, and motivates people to invest. However, high levels of inflation can also cause social unrest. The 2010-2011 Tunisian and Egyptian revolutions, for example, were triggered by rising food inflation and were followed by mass protests.
The way inflation is measured varies by country. For example, some countries use a core consumer inflation indicator that excludes prices set by governments and those most affected by temporary supply conditions. Other countries’ indices take a broader approach to include all consumer goods and services.
Inflation can occur for a variety of reasons, including increased production costs related to raw materials, labor, and market disruptions as well as higher demand and certain fiscal and monetary policies. It can also erode purchasing power, devalue the currency, and interfere with the ability to save, which is why central banks monitor inflation. Those with fixed incomes are most vulnerable to inflation, as their money does not stretch as far. Companies that can increase sales or earn more revenue in a period of inflation, on the other hand, benefit from it.