Inflation rates are an economic measure of how much prices for a basket of goods and services are increasing over time. This includes things like food, clothes and transportation.
A rising inflation rate can lead to people spending more than they have and having less money left over. It can also cause businesses to raise their prices to cover increased costs. When prices rise too quickly, they can be referred to as hyperinflation.
There are a variety of metrics used to calculate inflation, but the most popular is the Consumer Price Index (CPI). This report takes the prices of a predetermined basket of goods and services and then compares them to their values from the previous period. This helps statisticians determine the rate of inflation and then publish it monthly and annually. Statistical agencies will also report a measure of inflation that excludes certain volatile components such as food and oil to get a more accurate picture of the long run trend. This is often called core inflation or underlying inflation.
Cost-push inflation occurs when demand for a good or service spikes and those higher prices work their way through the production chain to increase the cost of raw materials and inputs. This will then increase finished product or service prices which are then passed on to consumers and reflected in various measures of inflation.
On the other hand, if aggregate demand decreases and firms pause hiring or lay off employees that will reduce staffing costs which lowers labor expenses and increases the profit margin. This will then lower the cost of finished products or services and lower overall inflation.