The inflation rate is a measure of the percentage increase in prices over time. This includes the price of goods and services that people buy, such as food, electricity, gas, etc. The inflation rate is calculated by comparing a basket of items at one point in time to the same basket of items at another point in time. This can be done month to month, which gives a monthly inflation rate; quarter to quarter, which gives a quarterly inflation rate; or year to year, which gives an annual inflation rate.
Inflation affects everyone differently. For example, when oil prices rise dramatically, this can create high inflation for truck drivers but may not have much of an impact on stay-at-home mothers. For this reason, many statistical agencies report what’s known as core inflation, which removes volatile components like food and energy from the overall price index. This helps to smooth out short term fluctuations in supply and demand conditions across different markets and can help central banks understand the overall effects of their monetary policies.
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