Inflation is the rate at which the general price level rises, reducing the purchasing power of each unit of currency. The U.S. Bureau of Labor Statistics measures it through the Consumer Price Index (CPI), which tracks a basket of about 80,000 goods and services across categories including housing (the largest weight at ~33%), food, energy, medical care, transportation, and apparel. CPI is a weighted average — not every price increases equally. Energy prices are volatile; housing costs sticky; technology goods often deflate. Understanding the composition of CPI helps explain why personal inflation rates can differ dramatically from headline figures.

The Rule of 70 applies to inflation as it does to investment growth: divide 70 by the annual inflation rate to find how many years until prices double. At 3% inflation, prices double every 23 years. At 7% (the 2022 peak), they would double in a decade. This compounding effect is why central banks target low, stable inflation (typically 2%) rather than zero: mild inflation encourages spending over hoarding, provides buffer against deflation, and allows real wage adjustments without nominal pay cuts. The Federal Reserve's 2% target balances these competing considerations.

The Personal Consumption Expenditures (PCE) price index is actually the Fed's preferred inflation gauge, not CPI. PCE adjusts for substitution behavior — when beef prices rise, consumers buy more chicken, and PCE captures this shift while CPI does not. PCE consistently runs 0.3-0.5 percentage points below CPI. Core PCE, excluding food and energy, is the Fed's primary focus because those categories are volatile and often revert without monetary intervention. Understanding which measure is being cited matters when interpreting inflation reports and Fed communications.

Hyperinflation — inflation exceeding 50% per month — has occurred dozens of times in history. Weimar Germany in 1923 saw monthly inflation rates of 29,000%, requiring people to carry wheelbarrows of cash for basic purchases. Zimbabwe experienced 89.7 sextillion percent monthly inflation in November 2008. More recently, Venezuela's inflation reached 1,000,000% in 2018. In all cases, hyperinflation stemmed from governments printing money to finance deficits. The lesson: central bank independence and credible inflation targeting are practical defenses against catastrophic monetary collapse.