What Is the Current U.S. Inflation Rate?

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The inflation rate is an important economic indicator because it tells you how quickly prices are changing. It's measured by the Consumer Price Index (CPI) and reported by the Bureau of Labor Statistics (BLS) each month. There is another measure of inflation, Personal Consumption Expenditures (PCE), which is reported by the Census Bureau.

By the Numbers

  • Consumer prices increased by 0.4% from September to October.
  • Year-over-year inflation stood at 7.7% in October 2022.
  • Inflation was lower than economists expected in October and gave many of them a reason to believe that the peak of inflation may be behind us.

What the Current Inflation Rate Means for You

The current inflation rate tells you how quickly prices for the stuff you buy is rising (or falling). The Federal Reserve works to keep inflation in a healthy range, but it takes time for the tools to work. By watching the inflation rate, you can make some guesses about what the Federal Reserve might do to influence interest rates, up or down. Inflation influences how consumers spend money now, and their expectations about how they'll spend in the future.

What Is the Inflation Target?

The core inflation rate excludes the impact of volatile oil and food prices and is often tracked on a year-over-year basis. Core inflation is what the Federal Reserve is talking about when it says its target for inflation is 2%. That's the rate the bank says is needed to maintain a healthy economy.

When inflation is in that healthy range (and is expected to remain there) interest rates throughout the economy are likely to also remain low enough to sustain economic growth, but not so low that the central bank can't reduce interest rates in the event of an economic slow down or recession.

Note

The Federal Reserve looks at the Personal Consumption Expenditures (PCE) report when it is deliberating because PCE inflation considered more reflective of true underlying inflation trends than CPI.

The inflation rate hovered just below the healthy range for quite some time, but in early 2022 it was rising fast enough to cause some businesses and investors to worry.

Deflation

Falling prices warn of deflation. Falling prices may seem like a great thing for shoppers, but deflation often signals an impending recession. With a recession come declining wages, job losses, and big hits to many investment portfolios. As a recession worsens, so does deflation. Businesses lower their prices in an attempt to get consumers to buy their products and services. Deflation is worse than inflation, because it signals falling demand.

The Federal Reserve combats deflation with expansionary monetary policy. It reduces the federal funds rate range to influence consumers to spend and banks to loan.

Healthy Inflation

Moderate inflation of around 2% is actually good for economic growth. Consumers are more likely to buy now rather than wait when they expect prices to rise. This spurs demand, driving prices higher. Inflation is a self-fulfilling prophecy.

The Federal Reserve monitors the core inflation rate (all goods less food and energy) when it decides whether to raise the fed funds rate range. The Fed uses expansionary monetary policy by lowering its administered rates when the rate is lower than the 2% target. It lowers the fed funds rate range to boost economic growth to prevent or end a recession.

The Fed uses contractionary monetary policy when it considers inflation to be rising too quickly. It raises rates to keep prices from rising more rapidly than your paycheck. Higher interest rates weaken consumer demand by making loans more expensive. That slows growth, reducing the economy's ability to create jobs.

Note

Inflation is usually driven by expectations of rising prices by consumers, investors, and businesses.

Hyperinflation

People sometimes worry that inflation will skyrocket, causing hyperinflation. They're concerned that price increases could be like those seen during the Weimar Republic in Germany. Hyperinflation is very rare because it means that prices are rising by 50% per month. 

BLS Inflation Calculator

The BLS inflation calculator shows how inflation eats away at your purchasing power. A 2.5% inflation rate means that something that cost $100 last year would cost $102.50 this year. It also means that you'd need a 2.5% raise just to stay even. A hard-earned 3.5% raise would only be worth 1.0% in additional buying power in this situation.

Frequently Asked Questions (FAQs)

How do you hedge your portfolio against inflation?

Some investors attempt to protect their portfolios from inflation by strategically allocating their funds. Gold, Treasury Inflation-Protected Securities (TIPS), and stocks are among the most common inflation hedges. But these assets don't always succeed in protecting investors, and investments can lose value at a faster rate than inflation.

When does cost-push inflation occur?

Cost-push inflation occurs when supplier costs increase. Suppliers pass cost increases on to customers if commodity costs or wages rise, which increases prices throughout the economy. Cost-push is one of the two primary types of inflation along with demand-pull. Demand-pull inflation occurs when consumer demand increases, such as when strong economic performance encourages consumers to spend money rather than save.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Bureau of Labor Statistics. "Consumer Price Index."

  2. Board of Governors of the Federal Reserve. "Why Does the Federal Reserve Aim for Inflation of 2% Over the Longer Run?"

  3. Federal Reserve Bank of Cleveland. "Consumer Price Data."

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