What is an inflation rate?

Inflation is a measure of the rate at which money is losing its value in terms of buying goods and services. The inflation rate is used to calculate the rise in the cost of living.

Where have you heard about inflation?

Everywhere. Inflation is, along with unemployment, the economic indicator of most interest to ordinary people. Politicians, economists and commentators discuss the direction in which inflation is heading and countries measure their inflation performance against each other. Too high a rate is thought to threaten social stability.

What you need to know about the inflation rate.

The inflation rate measures the loss of purchasing power of the currency in question, the extent to which more units of the same currency are needed to buy the same amount of goods or services. Some inflation is thought desirable in order to smooth changes in the economy. For example, workers in a struggling firm may well accept a wage freeze at a time of 2% inflation but would reject a 2% pay cut, despite its having precisely the same effect. Too much inflation would, ultimately, destroy public faith in the currency and see a barter economy or the use of a hard currency issued by another country.

Find out more about the inflation rate.

To learn more about the inflation rate and how it is worked out, see our definition of a basket of goods.