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Inflation erodes purchasing power as prices rise across essentials
The Federal Reserve measures inflation using broad market indices such as the CPI, which tracks changes in costs for items including food, gas, housing, and utilities.
Inflation refers to a sustained rise in prices, meaning each dollar buys less than it did before, according to Yahoo Finance. The outlet notes that inflation can affect everything from groceries to housing, making everyday essentials harder to afford if wages do not keep pace.
Yahoo Finance points to CPI, the Consumer Price Index for All Urban Consumers, as one of the most commonly cited measures of inflation. It tracks expenses across categories including food, gas, housing, utilities, and transportation, and price changes over 12-month periods are typically what experts refer to when discussing inflation.
The outlet also describes two main drivers of inflation: demand-pull inflation and cost-push inflation. Demand-pull inflation happens when demand outpaces supply or what the economy can produce, while cost-push inflation occurs when businesses raise prices due to higher costs of producing goods and services.
As an example of how inflation can show up in daily life, Yahoo Finance cites egg prices, saying the average cost of a dozen eggs rose from $1.53 in March 2020 to $2.14 more recently, an increase of about 40% over six years. The story adds that during the COVID-19 period, supply disruptions tied to paused shipments and shutdowns contributed to rapid price increases.