Inflation

• Inflation

  • Overview

    • Inflation is a sustained rise in the general price level of goods and services. It reduces the amount of goods and services a unit of money can buy.
    • A price increase in one item, neighborhood, or asset class is not by itself inflation. Economists measure broad price changes with indexes such as the Personal Consumption Expenditures price index and the Consumer Price Index.

  • Sources of pressure

    • Prices can rise when demand grows faster than the economy's ability to supply goods and services, when production costs rise, or when expectations and contracts carry price increases forward. The mix differs across episodes.
    • Monetary policy can influence aggregate demand and inflation expectations, but it does not directly set the price of each item or local market.

  • Local price shocks and the AI boom

    • A concentration of high-paid workers or newly liquid equity can increase competition for scarce housing in one region. That can raise local home prices and possibly rents; it does not establish a broad rise in the price level across the economy.
    • The Federal Reserve defines inflation as a general increase in prices across the economy. A local housing or restaurant price change is evidence about that market, not enough to establish local or national inflation by itself.
    • Federal Reserve: What is inflation?
    • Federal Reserve: Historical approaches to monetary policy explains how demand relative to productive capacity can contribute to sustained price increases.