Learn the stock market › The economy and the stock market › Lesson 1 of 6
What is inflation?
How inflation is measured
Every month the Bureau of Labor Statistics collects prices for a large basket of goods and services that households buy: food, rent, energy, clothing, cars, medical care and much more. Things people spend a lot on weigh more than things they rarely buy. The basket's price is compared with the same month a year earlier, and the rise in percent is the inflation rate. Comparing with the same month a year earlier keeps holiday sales and seasonal prices out of it.
A few things getting more expensive is not inflation by itself. Inflation is a broad rise, across much of the basket.
The Federal Reserve's own 2 percent goal uses a different index, the price index for personal consumption expenditures.
What a dollar has lost
| Year | CPI inflation | $100 then, in September 2026 dollars |
|---|---|---|
| 1980 | 12.5% | $390 |
| 1990 | 6.1% | $252 |
| 2000 | 3.4% | $194 |
| 2010 | 1.5% | $154 |
| 2020 | 1.4% | $129 |
| 2021 | 7.0% | $121 |
| 2022 | 6.5% | $114 |
| 2023 | 3.4% | $110 |
| 2024 | 2.9% | $107 |
| 2025 | 2.7% | $104 |
| September 2026, 12 months | 3.7% | $100 |
The last column uses the CPI. What cost $100 in 1980 cost about $390 in September 2026. Since December 2020 prices have risen 29% in all. In 2022 alone, December to December, they rose 6.5%; what that year did to rates and stocks is in The 2022 rate shock.
Why prices rise
Prices can rise because demand grows faster than what the economy can produce, so sellers can charge more. They can also rise because producing things gets more expensive, for example when wages or energy cost more. Expectations matter too: when households and businesses expect high inflation, they set prices and ask for wages with that in mind, which keeps it high. That is why the Federal Reserve wants everyone to be able to count on about 2 percent.
Inflation and your money
Money held as cash loses value at the rate of inflation. What counts for a saver is the return after inflation, called the real return. How stocks did when inflation was high is in How does inflation affect stocks?, and how the Federal Reserve uses interest rates against inflation in What is the federal funds rate?.
Test yourself
Inflation is 2% this year, and your savings account pays 1%. What happens to what your money can buy?
Sources
- U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers (CPI-U), US city average, not seasonally adjusted, read Nov 5, 2026.
- Federal Reserve, Monetary Policy: What Are Its Goals? How Does It Work?, read Nov 5, 2026.