Inflation is an increase in the prices of goods and services in the economy over time. In the United States, prices are typically tracked and measured by the Consumer Price Index. The Consumer Price Index – CPI - tracks price movements of a “basket” of goods and services that is thought to typify a basic consumption bundle for a household in the US. As the average cost of this typical basket of goods and services increases over time, the dollar has less purchasing power. In other words, it takes more dollars to purchase the same amount of goods and services at a higher price level. So, in real terms, the value of the dollar fluctuates inversely to average price movements. The year over year changes in the CPI result in an annual inflation rate.