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Recently, U.S. Federal Reserve Chief Jerome Powell delivered his Jackson Hole speech and unveiled a refreshed policy framework. As predicted, he announced the central bank would adopt a "flexible" average inflation targeting strategy. The Fed has given itself room to loosen policy (maintain low, but not negative, rates) and allows inflation to rise "moderately" above 2% for periods, as it focuses on increasing broad-based employment.

U.S. inflation has remained stubbornly below 2% since 2012, and higher prices is a hard sell to people during a pandemic and the worst economic downturn in decades. 

What is inflation？

Inflation is a quantitative measure of the rate at which the average price level of a basket of selected goods and services in an economy increases over some period of time. It is the rise in the general level of prices where a unit of currency effectively buys less than it did in prior periods. Often expressed as a percentage, inflation thus indicates a decrease in the purchasing power of a nation's currency.

As prices rise, a single unit of currency loses value as it buys fewer goods and services. This loss of purchasing power impacts the general cost of living for the common public which ultimately leads to a deceleration in economic growth. The consensus view among economists is that sustained inflation occurs when a nation's money supply growth outpaces economic growth.

To combat this, a country's appropriate monetary authority, like the central bank, then takes the necessary measures to keep inflation within permissible limits and keep the economy running smoothly.

How can we track the inflation?

Depending upon the selected set of goods and services used, multiple types of inflation values are calculated and tracked as inflation indexes. The most commonly used inflation indexes are the Consumer Price Index (CPI).

What's the Pros and Cons of inflation?

Inflation can be construed as either a good or a bad thing, depending upon which side one takes, and how rapidly the change occurs.

For example, individuals with tangible assets, like property or stocked commodities, may like to see some inflation as that raises the value of their assets which they can sell at a higher rate. However, the buyers of such assets may not be happy with inflation, as they will be required to shell out more money. Inflation-indexed bonds are another popular option for investors to profit from inflation.

A country's financial regulator shoulders the important responsibility of keeping inflation in check. It is done by implementing measures through monetary policy, which refers to the actions of a central bank or other committees that determine the size and rate of growth of the money supply.

In the U.S., the Fed's monetary policy goals include moderate long-term interest rates, price stability and maximum employment, and each of these goals is intended to promote a stable financial environment. The Federal Reserve clearly communicates long-term inflation goals in order to keep a steady long-term rate of inflation, which in turn, maintains price stability.