Inflation
A general rise in prices that erodes purchasing power.
What is Inflation?
Measured most commonly by the Consumer Price Index. It is the reason nominal returns overstate real gains and the reason long-horizon portfolios need growth assets. Central banks in developed economies typically target around 2%.
Inflation: a worked example
At 3% inflation, $100,000 of spending power today requires about $181,000 in 20 years.
More terms in Macro & Markets
Real vs. Nominal Return
Return after inflation versus the headline number.
Federal Funds Rate
The overnight interbank lending rate targeted by the Fed.
Monetary vs. Fiscal Policy
Central bank rate and money supply tools versus government tax and spending.
Yield Curve
A plot of Treasury yields across maturities.
Yield Curve Inversion
Short-term yields exceeding long-term yields - a recession signal.
Recession
A significant, broad, sustained decline in economic activity.
Quantitative Easing
Central bank purchases of long-dated assets to push down long rates.
Gross Domestic Product (GDP)
The total value of goods and services produced in an economy.