What is inflation? Understanding why prices rise and what causes it.

8 mins read

Inflation is hovering at a 40-year high, driven by steep increases in food prices, housing and utilities.

The Federal Reserve is trying to bring it down by aggressively raising interest rates, even if it pushes the economy closer to a recession. 

Still, prices are soaring, making it harder for many Americans to get by.

The concept of inflation has been around for decades, as prices have always fluctuated over time. While it is easy to see and measure those price changes, it is something else to actually understand them.  

Inflation can impact many things besides costs, such as employment and wages. 

So, what is inflation, and what causes it? 

In May 2022, inflation unexpectedly reached a new 40-year high, as gas, food and rent prices rose. This was the largest rise since December 1981, according to the Labor Department.

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What is inflation? 

Inflation is a “generalized rise in prices,” said Josh Bivens, the director of research at the Economic Policy Institute. For example, goods like gas, rent or food can be impacted by inflation. 

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