What is the inflation rate?

The inflation rate refers to the percentage increase in the general level of prices for goods and services in an economy over a specified period, typically measured annually. It is a critical economic indicator that reflects the purchasing power of a currency. When the inflation rate is high, money loses value, meaning consumers can buy less with the same amount of money.

Capturing how much prices rise allows businesses, governments, and consumers to make informed decisions regarding spending, investment, and policy-making. Understanding the inflation rate provides insight into economic health, helping to determine whether growth is sustainable or if adjustments are needed to stabilize the economy.

In contrast, the amount of money in circulation does not directly indicate inflation and can vary independently of price changes. A fixed value set by governments does not reflect a dynamic economy where prices fluctuate. Monthly changes in the job market pertain to employment statistics rather than price changes. Therefore, focusing on the percentage increase of prices during a specific period accurately encapsulates what the inflation rate measures.