# Inflation

Canonical URL: https://olomon.com/financial-glossary/inflation
Markdown twin: https://olomon.com/financial-glossary/inflation/llms.txt
Category: Wealth Concepts (https://olomon.com/financial-glossary/categories/wealth-concepts)
Also known as: Price inflation, CPI inflation
Last updated: 2026-05-03

## Definition

Inflation is the sustained rise in the general price level of goods and services, which reduces the purchasing power of each unit of currency over time. It is most commonly measured by the Consumer Price Index (CPI) published by the U.S. Bureau of Labor Statistics, and influences interest rates, asset prices, and household financial planning.

## Key takeaways

- CPI is the most widely cited measure of U.S. inflation.
- The Federal Reserve targets ~2% annual inflation as a long-term goal.
- Inflation erodes the real value of cash and fixed-rate debt; it can benefit borrowers and asset owners.
- Long-term planning should always discount nominal returns by expected inflation.

## How Olomon thinks about this

_The following section is Olomon's first-party perspective, informed by our work building a financial system of record. It is intentionally separated from the neutral definitional content above._

Olomon tracks both nominal balances and trend inflation, so households and advisors can make decisions — retirement contributions, real-estate carrying costs, charitable giving — with real purchasing power in mind.

## Quick facts

| Fact | Value | As of |
|------|-------|-------|
| Federal Reserve long-run target | 2% (PCE) | — |
| Most cited measure of U.S. inflation | Consumer Price Index (CPI-U) | — |
| Publisher of CPI | U.S. Bureau of Labor Statistics | — |
| Publisher of PCE | U.S. Bureau of Economic Analysis | — |

## In-depth definition

Inflation is the silent factor in nearly every financial decision. A 5% nominal return in a 4% inflation environment is barely 1% in real terms. Plans built on nominal numbers without inflation adjustment systematically over-promise. The Bureau of Labor Statistics publishes the Consumer Price Index (CPI-U) monthly[1], and the Federal Reserve targets a 2% inflation rate over the longer run, measured against the Personal Consumption Expenditures (PCE) price index.[2]

## Frequently asked questions

### How is inflation measured?

Most commonly by the Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the U.S. Bureau of Labor Statistics. The Federal Reserve also relies on the Personal Consumption Expenditures (PCE) price index for monetary policy.

## Sources

1. [Consumer Price Index — BLS](https://www.bls.gov/cpi/) — U.S. Bureau of Labor Statistics. Cited for: Authoritative U.S. inflation measure.
2. [Why does the Federal Reserve aim for inflation of 2 percent over the longer run?](https://www.federalreserve.gov/faqs/economy_14400.htm) — Board of Governors of the Federal Reserve System. Cited for: Fed inflation target.

## Related terms

- [Compound interest](https://olomon.com/financial-glossary/compound-interest-compound-growth)
- [Liquidity](https://olomon.com/financial-glossary/liquidity)
- [Risk tolerance](https://olomon.com/financial-glossary/risk-tolerance)

## Cite this page

Olomon Editorial Team. (2026). Inflation. Olomon Financial Glossary. https://olomon.com/financial-glossary/inflation

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