 TITLE: What Is Inflation? CONTENT: What Causes Inflation?\n----------------------\nThree key factors can drive up inflation:\n1.  Demand for goods and services exceeds the supply, which can lead to higher prices.\n2.  The cost of producing goods and services goes up, with providers of goods and services passing along the extra expense to buyers.\n3.  A lot of money is floating around in the economy. When the pool of money available to spend deepens, it can pave the way for higher demand for goods and services. This, in turn, can trigger an uptick in the cost of producing those goods and services. For instance, that uptick might include a jump in wages paid to workers who generate those goods and services.\nMany economists sum up the cause of inflation as \"too much money chasing too few goods.\"\nEconomists and others measure inflation by tracking the following:\n*   **Consumer Price Index (CPI)**: This closely watched monthly index measures the average change, over time, in the prices paid by urban consumers in the U.S. for a big basket of goods and services. Among the many items in that basket are milk, chicken, rent, gas, prescription drugs, clothing, cable TV service and haircuts. From June 2020 to June 2021, the CPI jumped 5.4%. That was the biggest year-over-year increase in the CPI since August 2008, in the midst of the Great Recession.\n*   **Producer Price Index (PPI)**: This monthly index measures the average change, over time, in the prices that producers fetch for their goods and services.\n*   **Personal Consumption Expenditures Price Index (PCE)**: This monthly index reflects changes in the prices of goods and services that U.S. consumers purchase. It's similar to, but not the same as, the CPI. END