Inflation — Financial Glossary

What is inflation?

Inflation is the rate at which prices for goods and services increase over time. When inflation rises, each dollar you have buys less than it did before — this is called a decline in purchasing power.

How is it measured?

The most common measure is the Consumer Price Index (CPI), which tracks the average change in prices paid by consumers for a basket of goods and services. The Federal Reserve targets an annual inflation rate of about 2%.

Impact on your finances

• Savings: If your savings earn less than the inflation rate, you're losing purchasing power
• Investments: Stocks have historically outpaced inflation over the long term
• Debt: Inflation can actually benefit borrowers, as they repay loans with "cheaper" dollars

Use our Inflation Calculator to see how inflation affects the future value of your money.