Inflation 101

A Deeper Look at the Hottest Topic in Markets

SIFMA Insights - Capital Formation

Conceptually, everyone knows what inflation is: an indicator of price increases over time. In everyday life, we experience inflation as we pay more for the items in our shopping cart (be it online or in-person). More technically, inflation, as reflected quantitatively by an increase of an average price level of a basket of selected goods and services in an economy, is the rate of decline of purchasing power of a given currency over some period of time. In other words, as prices rise, each unit of currency can buy fewer goods and services.

Inflation is measured as the growth rate of a price index over some period of time (often expressed as a percentage), where the index measures the general price level compared to a select base year. Many economic factors – changes in energy prices, an increase in the money supply, a decline in the demand for money, demand for goods and services going up or the supply of goods going down – determine the inflation rate.

Since inflation continues to be a hot topic in markets, we thought we would take a deeper look into inflation terminology, measurement, and historical trends.

Report Sections

  • Terminology: Underlying (sustained) versus transitory (temporary); core inflation; base effect (impact from different reference points in comparing data points); etc.
  • Measurement: Walking through index calculations; comparing CPI versus Core CPI (ex-energy and food); additional information on PCE and PPI
  • Historical trends: Charts on the long view of inflation trends; a look at normal inflation over the last two decades; and the COVID impact on inflation



Katie Kolchin, CFA
Director of Research
SIFMA Insights