Inflation can harm shoppers, as it reduces their purchasing power. But it can also benefit some companies, which can raise prices when their own production costs rise due to a surge in demand for their products. Home-building companies, for example, are often able to increase prices when housing demand is high. Inflation can also hurt those living on fixed incomes, since it erodes the value of their savings.
The inflation that swept through the economy in 2021 and 2022 was driven by many factors, including disruptions to global supply chains from the COVID-19 pandemic and the various stimulus packages. The rapid price increases also stemmed from higher energy and food prices, as well as a sharp jump in global interest rates.
In conventional macroeconomics, inflation is measured by tracking the yearly change in consumer price indexes (CPI). The CPI reflects a broad mix of goods and services sold to consumers, including commodities like oil, food and clothing, as well as staples such as housing and education.
While most consumers know that the per-gallon price of gasoline is rising, the causes of broader price changes are more difficult to discern. Many economists believe that consumer inflation is mostly caused by firms raising their prices in response to higher production costs. However, some researchers (including Max Dupor and Marie Hogan, a Federal Reserve Bank of St. Louis economist) have suggested that the unexplained spike in inflation expectations that began in 2025 may signal a de-anchoring of consumer inflation expectations.