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Inflation 101

This site is meant to give you a general understanding of basic inflation concepts. The Get Started ( ) section explains basic inflation concepts in a nontechnical way and will give you a good understanding of what inflation is, why it’s important to pay attention to it, and how the Federal Reserve is involved. In the Get Technical ( ) section you will find more detailed explanations on the same topics and answers to related questions that will give you a deeper understanding of inflation, its effects on people and the economy, and the Fed’s role in keeping it under control.

Robert Rich, director of the Center for Inflation Research and senior economic and policy adviser, discussed common inflation misconceptions on Marketplace. Read or listen to the interview

At a time of heightened interest in inflation among people, businesses, and communities, the Center for Inflation Research is committed to providing timely answers to timely questions. Why has inflation surged over the past year? Our researchers respond to this question.

Take the Inflation 101 Quiz
Download this PowerPoint and take the Cleveland Fed’s Inflation 101 Quiz.

What Is Inflation?

Have you ever been shopping and noticed that the prices 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 price level.

Get started

  • What is inflation?
  • Why do prices change?
  • Is every price increase inflation?
  • How can we tell when inflation is happening?

Get technical

  • How do you measure inflation?
  • What are price indexes?
  • What is “underlying” inflation and how is it measured?
  • What are deflation, hyperinflation, and stagflation?
  • What is the connection between the Phillips curve and inflation?

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.

Get started

  • How does inflation affect the economy?
  • How can inflation be harmful?

Get technical

  • What are the effects of inflation?
  • What problems do predictable and unpredictable inflation cause?

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.

Get started

  • Why does the Federal Reserve care about keeping prices stable?
  • How does the Federal Reserve try to control inflation?

Get technical

  • What is the Federal Reserve’s “dual mandate”?
  • Does the Federal Reserve have a specific target for inflation?
  • Why doesn’t the Federal Reserve set an inflation target of 0 percent?
  • Does the Fed focus on underlying inflation because it doesn’t care about certain price changes?