Inflation is the rate at which prices rise over time. This is a key economic concept, as it affects consumer spending and the cost of goods for businesses. Ideally, low and steady inflation is a good thing for an economy. Inflation allows consumers to buy more goods with their money, and businesses to spend more on materials, wages and labor. A slow and steady increase in inflation also helps to make debt payments more manageable for individuals with mortgages or other types of debt.
In order to measure inflation, the Bureau of Labor Statistics measures the prices paid by households for a number of different goods and services. This includes a broad range of products like food, housing, apparel, medical care, recreation and transportation costs, education and communication. Prices for these items are weighted to reflect the relative importance of each product in a household’s total spending. This allows for a more accurate picture of the overall impact price changes have on the economy.
The Office for National Statistics monitors the price of 700 different products and services every month in a basket that represents the average consumer’s buying habits. Each item’s price is then compared to the price of that same item in the same month one year prior, to calculate the annual inflation rate.
Canadian headline inflation in August accelerated to 2.9% on a year-over-year basis, up from 1.7% in July. Core inflation measures excluding energy and food prices remained elevated above the Bank of Canada’s target at 3%.
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