Atlas Macro

Economy

Inflation

The rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. Central banks attempt to limit inflation, and avoid deflation, in order to keep the economy running smoothly.

Key points

  • The Federal Reserve targets an annual inflation rate of 2%.
  • High inflation erodes the real value of fixed-income assets like bonds.
  • It is primarily measured by CPI and PCE indices.

In history

The 'Great Inflation' of the 1970s saw US inflation peak above 14%, forcing the Fed to raise rates to 20%.

Related terms