Definition
Inflation is the rate at which the purchasing power of money decreases, reflected in rising prices for goods and services. Moderate inflation (2-3%) is considered healthy for economic growth, while high inflation erodes savings and creates uncertainty. The primary inflation measures are Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE). Central banks use interest rates to control inflation. Inflation significantly impacts investment returns - assets must outpace inflation to generate real returns.
Formula
Example
With 3% inflation, $100 today only buys $97 worth of goods next year. An investment returning 5% nominally only provides 2% real purchasing power increase. High inflation periods often hurt bonds and help commodities.
FAQ
What is Inflation?
The rate at which the general price level of goods and services rises over time.
How do you calculate Inflation?
A common formula for Inflation is: 通胀率 = [(当期CPI - 上期CPI) / 上期CPI] x 100; 实际回报 = 名义回报 - 通胀率
Why is Inflation important?
Inflation helps investors evaluate macroeconomic and make more informed decisions.