FAQs
What is the inflation rate?
The inflation rate measures the change in living costs for the average consumer over a given period. While there are various measures of inflation, the most popular is the Consumer Price Index (CPI), a measure of changes in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI inflation rate for the 12 months ending December 2025 was 2.7%. 2
What does inflation affect?
Higher living costs, reflected by inflation, represent a loss of purchasing power. This is an important consideration not only in your day-to-day living, but in your long-term financial planning. To improve your quality of life over time, you’ll want to see your income grow faster than the inflation rate. To retain your lifestyle in retirement, you want to be sure that income you receive from your own investments and other sources keeps pace with changes in living costs over the course of retirement. This is why inflation has such a significant impact on individuals.
What is a high inflation rate?
The Federal Reserve, which Congress charged with maintaining stable prices, targets a long-term inflation rate of 2%. Between 2012 and 2020, the annual inflation rate was between 0.7% and 2.3%. Since that time, inflation has been much higher. It stood at 7.0% in 2021, 6.5% in 2022 and 3.4% in 2023 before dropping to 2.9% in 2024 and 2.7% in 2025. 6 Still, the Consumer Price Index, the most cited inflation measure, remains above the Federal Reserve’s 2% target. 3
