Glossary · Economy
Inflation
Inflation is the rate at which prices rise on average, so the same money buys a little less each year.
Also called: rising prices, consumer price inflation, CPI inflation
Consumer prices to September 2026. A year earlier: 3.0%.
US consumer prices, Oct 2026
In plain words
Imagine your favorite pizza costs $10 this year and $10.40 next year. Nothing about the pizza changed; the dollar did. When most prices creep up like that at the same time, economists call it inflation. A rate of 4% means that, on average, things cost 4% more than a year ago.
Inflation is measured with a huge imaginary shopping basket: food, rent, fuel, haircuts, phone plans, thousands of prices. Statisticians check the same basket every month. In the United States the best-known gauge is the consumer price index (CPI), and over the 12 months to September 2026 it rose 3.7%.
A little inflation is normal, and most central banks aim for about 2% a year. The trouble starts when it runs fast: cash savings shrink, and wages have to sprint just to stand still.
Example
A $10 pizza at three speeds of inflation
Prices compound like interest: each year’s rise lands on top of the last one.
- At 2% a year: $10 → $10.20 → $10.40 … after 10 years the pizza costs $12.19.
- At 5% a year it costs $16.29 after 10 years.
- At 10% a year it costs $25.94: the price more than doubles.
Rule of thumb: divide 70 by the inflation rate to get the years it takes prices to double. At 2% that takes 35 years. At the latest US rate of 3.7% it would take about 19 years.
One level deeper
Prices rise when people want to buy more than the economy can make (for example when borrowing is cheap and spending runs ahead of production), or when making things gets dearer, as when the price of oil jumps. Expectations matter too: if everyone expects 5% inflation, workers ask for 5% raises and shops plan 5% price rises, and the forecast fulfills itself.
Central banks fight high inflation mainly with interest rates: dearer loans cool spending. Since 1950, US consumer prices rose by an average of 3.5% a year; altogether they are 14.4 times higher. The fastest pace was 14.6% over the 12 months to Mar 1980.
When prices fall instead, it is called deflation; when they rise by more than about 50% a month, hyperinflation. Economists also watch core inflation, which leaves out food and energy because their prices jump around.
US inflation since 1950
Each point is the change in consumer prices over the previous 12 months. Inflation surged in the 1970s, was tamed in the early 1980s, stayed between 1% and 4% in most months of the next four decades, and jumped again after 2020.
The numbers behind the chart
| Date | Inflation, last 12 months |
|---|---|
| Jan 1950 | −2.1% |
| Dec 1950 | 5.8% |
| Dec 1960 | 1.4% |
| Dec 1970 | 5.6% |
| Dec 1980 | 12.3% |
| Dec 1990 | 6.3% |
| Dec 2000 | 3.4% |
| Dec 2010 | 1.4% |
| Dec 2020 | 1.3% |
| Dec 2022 | 6.4% |
| Dec 2023 | 3.3% |
| Dec 2024 | 2.9% |
| Dec 2025 | 2.7% |
| Sep 2026 | 3.7% |
Why it matters
Inflation decides what your money is really worth. A savings account paying 3% while prices rise 4% is losing value: the real return is about −1%.
It moves interest rates: when inflation runs hot, central banks raise rates, which makes mortgages and loans dearer and can push down the prices of bonds and stocks.
It quietly moves wealth around: borrowers repay with cheaper dollars, while lenders and people on fixed incomes lose.
A common mistake
Myth: When inflation goes down, prices go down.
In fact: Lower inflation only means prices rise more slowly. Prices fall only when inflation drops below zero (deflation), which is rare: since 1960 the deepest 12-month fall in US prices was −2.0%, to Jul 2009.
Questions people ask
What is a good inflation rate?
Most central banks aim for about 2% a year: low enough that people stop worrying about prices, high enough to stay clear of deflation. The US Federal Reserve made 2% its official goal in 2012; the European Central Bank aims for 2% too.
How much have prices risen since 2000?
In the United States, something that cost $100 in January 2000 costs about $199 now (Oct 2026): prices rose 99%. Put the other way round, $100 kept in a drawer since 2000 buys only what $50.17 bought then.
Who measures inflation?
In the US, the Bureau of Labor Statistics publishes the consumer price index every month, and the Federal Reserve also watches the PCE price index. Other countries have their own statistics offices; our inflation by country page compares them.
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About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Consumer price index, all items (CPI-U): U.S. Bureau of Labor Statistics, Consumer Price Index, series CPIAUCSL; retrieved from FRED, Federal Reserve Bank of St. Louis.
- This page explains a term. It is not investment advice.