Inflation
The rate at which the general price level of goods and services rises, eroding purchasing power over time.
Inflation measures how fast prices across an economy are rising. Central banks target a steady, low rate — typically around 2% — because runaway inflation destroys purchasing power while deflation can freeze spending.
Markets watch inflation closely because it drives central bank decisions. Rising inflation forces rate hikes that raise borrowing costs, compress equity valuations, and hit long-duration bonds hardest. Falling inflation opens the door to rate cuts that fuel risk assets.
On the desk
When U.S. CPI surged above 8% in 2022, the Fed launched its most aggressive hiking cycle in four decades. The S&P 500 fell over 25% and the Nasdaq nearly 35% as rising discount rates crushed growth stock valuations.