The inflation rate is a measure of the percentage change in prices, based on a basket of goods and services. This is an important economic indicator because when prices rise, purchasing power declines. This is why the Federal Reserve has a 2% inflation target, based on the Personal Consumption Expenditures Price Index.

A number of factors can influence the inflation rate. For example, a shortage of energy supplies can lead to higher gas prices and thus higher consumer inflation. Similarly, an increase in government spending or a central bank printing too much money can cause inflation to spike. High inflation can also occur as a result of other economic events, such as natural disasters or wars that raise the costs of raw materials needed to make finished products. These events are referred to as cost-push inflation and typically cause price increases that feed on themselves over time.

Investors should stay tuned to changes in the inflation rate because it can affect the value of their investments and even their savings accounts. If inflation stays elevated, then it may be a good idea to invest in more stable assets such as real estate or fixed income investments such as Treasury bills and annuities.

Individuals on a fixed income, such as retirees receiving Social Security benefits, are likely to be negatively affected by higher inflation rates because their dollar will not have the same purchasing power. They may receive COLA increases to their benefits, but these will not keep pace with the higher prices over time.