Inflation is the rate at which prices for goods and services rise over time. When inflation is 3%, the same basket of everyday purchases costs about 3% more than it did a year earlier. So each dollar buys a little less. As of the latest government report, US consumer prices were up 3.7% over the 12 months ending September 2026.
This guide explains what that number means, how it is measured, what pushes it up, and how it touches your savings, debts and paycheck.
Inflation meaning in economics
Economists define inflation as a broad, sustained rise in the general price level. The key word is broad. One product getting pricier is not inflation on its own. For example, if coffee jumps because of a bad harvest while most other prices hold steady, that is a price change in one market. Inflation is when prices across rent, food, fuel, services and goods drift up together.
Another way to say it: inflation is a fall in the purchasing power of money. A $20 bill does not change, but what it can buy does. That is why economists separate “nominal” amounts, the dollar figures you see, from “real” amounts, which are adjusted for price changes.
Mild inflation is normal in a growing economy. Problems start when it runs well above or below what people expect, because then contracts, wages and savings plans stop matching reality.
What is the inflation rate now
The most recent figure comes from the Bureau of Labor Statistics September 2026 CPI release, published on October 14, 2026. Here is what it showed:
- Headline inflation: the Consumer Price Index for All Urban Consumers (CPI-U) rose 3.7% over the 12 months ending September 2026, up from 3.4% in August.
- Monthly change: prices rose 0.6% in September alone, after seasonal adjustment.
- Core inflation: excluding food and energy, prices rose 2.6% over the year.
- Energy: the energy index was up 20.4% from a year earlier, and gasoline was up 34.2%. Gasoline alone accounted for more than half of September’s monthly increase.
- Food and shelter: food prices rose 2.5% over the year, while shelter costs rose 3.2%.
In practice, this means the jump in headline inflation in 2026 is driven mostly by fuel. Prices outside food and energy are rising more slowly. The next CPI report, covering October 2026, is scheduled for November 10, 2026.
National numbers also hide local differences. Rent, gas and groceries move at different speeds in different cities, so our guide to the cost of living in Los Angeles shows how price pressure looks on the ground in one expensive metro.
How inflation is measured: CPI vs PCE, core vs headline
The US government tracks prices with two main indexes. They overlap, but they are built for different jobs.
Consumer Price Index (CPI)
The CPI from the Bureau of Labor Statistics follows the prices urban households pay out of pocket for a fixed basket. That basket covers housing, food, transportation, medical care, apparel, recreation, education and more. Data collectors record tens of thousands of prices each month. The CPI is the number most headlines quote. It is also the one used to adjust Social Security payments and federal tax brackets.
Personal Consumption Expenditures (PCE) price index
The PCE index comes from the Bureau of Economic Analysis. It covers a wider range of spending, including costs paid on your behalf, such as employer health insurance. It also updates its weights as people switch between products. According to the BEA’s August 2026 report, PCE prices were up 3.4% over the year, and core PCE was up 3.0%. The Federal Reserve uses PCE for its inflation goal.
Core vs headline
Headline inflation includes everything. Core inflation strips out food and energy because those prices swing hard with weather, harvests and oil markets. Core is not a better measure of your own costs, since you still buy gas and groceries. Instead, it helps show whether price increases are spreading through the wider economy or are tied to one shock.
| Measure | Published by | Latest 12-month change | Main use |
|---|---|---|---|
| CPI (headline) | BLS | 3.7% (Sept. 2026) | News coverage, Social Security and tax indexing |
| Core CPI | BLS | 2.6% (Sept. 2026) | Underlying price trend |
| PCE (headline) | BEA | 3.4% (Aug. 2026) | Federal Reserve’s 2% goal |
| Core PCE | BEA | 3.0% (Aug. 2026) | Fed’s read on the trend |
Recent annual CPI figures
The table below shows the official 12-month change in CPI-U for each December, plus the latest month. It covers the post-pandemic surge and the slowdown that followed.
| 12 months ending | All items (headline) | Core (less food and energy) |
|---|---|---|
| December 2021 | 7.0% | 5.5% |
| December 2022 | 6.5% | 5.7% |
| December 2023 | 3.4% | 3.9% |
| December 2024 | 2.9% | 3.2% |
| December 2025 | 2.7% | 2.6% |
| September 2026 | 3.7% | 2.6% |
Source: BLS CPI news releases, not seasonally adjusted 12-month changes.
What causes inflation
Most episodes of inflation trace back to one or more of three forces. They often overlap, which is why economists argue about the mix.
Demand-pull inflation
This happens when people and businesses want to buy more than the economy can produce. Strong job markets, tax cuts, stimulus payments or easy credit can all lift spending. If supply cannot keep up, sellers raise prices. A busy restaurant that is full every night has little reason to hold its menu prices.
Cost-push inflation
Here the pressure starts on the supply side. When oil, raw materials, shipping or labor get more expensive, companies pass part of those costs on. The current energy spike is a clear example. Higher fuel prices raise the cost of driving, flying and moving goods, so they leak into other prices over time.
Money supply and expectations
If the amount of money and credit grows much faster than the output of goods and services, prices tend to rise over the long run. Expectations matter too. If workers expect 5% inflation, they ask for bigger raises. Then firms raise prices to cover those raises, which can keep inflation going. That is one reason central banks watch surveys of expected inflation closely.
The Fed’s 2% target and how interest rates respond
The Federal Reserve aims for inflation of 2% over the longer run, measured by the PCE index. The Fed explains its 2 percent goal as the rate most consistent with stable prices and maximum employment. A little inflation gives the Fed room to cut rates in a downturn, but not so much that it distorts decisions.
The Fed’s main tool is the federal funds rate, the rate banks charge each other for overnight loans. When inflation runs too hot, the Fed raises that rate. Borrowing then gets more expensive for mortgages, car loans, credit cards and business credit. So people and companies spend less, and price pressure eases. When inflation is too low or the economy is weak, the Fed cuts rates to do the opposite.
On September 16, 2026, the Federal Open Market Committee raised its target range by a quarter point to 3.75%-4.00%. It said the move should support a faster return to its 2% goal. Rate changes work with a lag, often many months, which is why the Fed acts before it sees the full effect. Nobody can say for sure where rates or inflation go next, and the Fed itself adjusts meeting by meeting.
How inflation affects savings, debt and wages
Savings
Inflation quietly shrinks cash. If your savings account pays 2% and inflation is 3.7%, your money loses about 1.7% of its buying power a year. In other words, the “real” return is the interest rate minus inflation. A simple rule of thumb: divide 72 by the inflation rate to see roughly how many years it takes prices to double. At 3.7%, that is about 19 years.
Debt
Fixed-rate debt, such as a 30-year fixed mortgage, gets lighter in real terms during inflation. Your payment stays the same while wages and prices rise around it. Variable-rate debt works the other way. Credit cards, adjustable mortgages and many business loans reset higher when the Fed raises rates, so monthly costs can climb quickly.
Wages
What matters for your budget is your real wage, meaning pay growth minus inflation. A 4% raise in a year with 3.7% inflation is only a small real gain. Some pay rules are tied to prices directly. For example, California’s minimum wage is adjusted each year based on national inflation, so it rises when the cost of living does. Most private-sector pay, however, has no automatic link, which is why workers often fall behind when inflation speeds up.
This article is general information, not financial advice.
Inflation vs deflation
Deflation is the reverse: a broad, sustained fall in prices. Cheaper goods sound good, but widespread deflation is usually a warning sign. When people expect prices to keep falling, they delay purchases. Then businesses cut output and jobs, and debts become harder to repay because incomes shrink while loan balances do not. Japan struggled with mild deflation for years. Disinflation is different again. It means inflation is still positive but slowing, as happened in the US between 2022 and 2025.
For more explainers on prices, rates and personal finance, see our money and business guides.
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Frequently asked questions
What is inflation in simple terms?
It is the general rise in prices over time. When inflation is positive, a dollar buys less this year than it did last year.
What is the US inflation rate right now?
As of the October 14, 2026 report, CPI inflation was 3.7% for the 12 months ending September 2026. Core CPI was 2.6%. The October figure is due on November 10, 2026.
What is a good inflation rate?
The Federal Reserve targets 2% a year, measured by the PCE price index. Rates well above that erode savings faster, while rates near zero or below raise the risk of deflation.
What is the difference between CPI and PCE?
CPI tracks what urban households pay out of pocket for a fixed basket. PCE covers broader spending, including costs paid on your behalf, and adjusts for shifts in what people buy. PCE usually runs a bit lower, and it is the Fed’s preferred gauge.
Does raising interest rates lower inflation?
Usually, yes, but slowly. Higher rates make borrowing costlier, which cools spending and eases price pressure. The full effect can take a year or more to show up.
Have a question about this topic? Ask in the comments below. Our editors read every comment and answer questions here, and we add useful answers to the guide.
Sources
- bls.gov/news.release/cpi.nr0.htm
- bls.gov/news.release/archives/cpi_01122022.htm
- bls.gov/news.release/archives/cpi_01122023.htm
- bls.gov/news.release/archives/cpi_01112024.htm
- bls.gov/news.release/archives/cpi_01152025.htm
- bls.gov/news.release/archives/cpi_01132026.htm
- bls.gov/cpi
- bea.gov/news/2026/personal-income-and-outlays-august-2026
- federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm
- federalreserve.gov/faqs/economy_14400.htm