Inflation 101

What is inflation?

Have you ever been shopping and noticed that the prices of a range of things you buy have gone up? If the same things in your shopping basket cost $100 last year and now they cost $105, at a very basic level, that’s “inflation.” More precisely, inflation is defined as ongoing increases in the overall level of prices.

Why should you care about inflation?

What would you do if the money in your wallet or bank account could buy less and less every year? Would you spend more time thinking about how to get the most out of your money while you could? Would you change what you bought or how much? Would you keep money in your savings account? Thinking more broadly, inflation affects everyone in the economy: workers, businesses, people on fixed incomes, lenders, and borrowers.

Why does the Fed care about inflation?

Some countries have experienced such high inflation rates that their money became worthless. Imagine going to the store with boxes full of money and not being able to buy anything with it because prices have gotten so high! At such high inflation rates, the economy tends to break down. One of the Federal Reserve’s main responsibilities is to keep prices stable.

Have you been hearing different inflation related terms mentioned on social media or in the news and want to learn more? We've created a new stop motion video series that explains different types of 'flation with everyday items, like potato chips. Watch the videos below to find out how! For more of our social content, follow us on Twitter, Facebook, LinkedIn, and Instagram to stay up to date with our latest inflation work.