The inflation rate is the percentage increase in the Consumer Price Index (CPI) year-over-year. It’s the most common measure of inflation used by governments and investors. Inflation is often caused by imbalances between supply and demand, or when a country’s central bank circulates more currency than the economy can support. Other causes include shortages, high raw material costs, labor mismatches and geopolitical conflict.

The CPI is a monthly survey of the prices of a basket of goods and services consumed by households. It’s a widely-used statistic because it provides a snapshot of the average change in prices over time, which can be useful for comparing the purchasing power of money. When prices rise, the value of money erodes and people can buy fewer goods with their income. Higher inflation rates can also damage investments and discourage saving because investment returns need to keep pace with the rate of inflation in order to be profitable.

Statistical agencies use a number of different methods to calculate inflation. The most popular is the Consumer Price Index, which includes a basket of products and services that are regularly purchased by households. To calculate the inflation rate, statisticians compare the value of the CPI for one month with the same period in the previous year.

Some economists focus on a subset of the CPI called core inflation, which excludes the price of food and oil, which can be volatile due to supply and demand conditions in specific markets. This figure is often watched closely by policymakers because it helps them discern long-term inflation trends.