Why Prices Rise (and Fall): A Clear, Everyday Guide to Inflation
Inflation is often described as “everything is expensive,” but in economics it’s the pace of price increases. Here’s how to read the data—and your budget—more clearly.
By TheMurrow Editorial
January 31, 2026
Key Points
- 1Understand inflation as the rate of price increases—prices can stay painfully high even when inflation “cools” through disinflation.
- 2Compare CPI vs. PCE and headline vs. core to decode headlines; different indexes and exclusions can make the same economy look hotter or calmer.
- 3Track demand, costs, expectations, and margins to spot pressure early—wages/credit, PPI signals, and surveys can move before consumer prices do.
A carton of eggs costs more than you remember. Rent renewals come with a sting. Your streaming subscriptions quietly inch upward. Yet the headlines insist inflation is “cooling,” and the Federal Reserve keeps pointing to progress.
Both things can be true. The confusion is built into the word inflation itself—used in daily conversation to mean “everything is expensive,” but in economics to mean something more specific: the pace at which prices are rising.
That distinction matters because it changes what policy can do, what businesses will try next, and how households should read the next data release. Even if inflation slows, the higher price level tends to stick around. Most families don’t experience “disinflation” as relief. They experience it as the end of the freefall—after the fall has already happened.
When inflation cools, prices usually don’t fall. They just rise more slowly—starting from a higher base.
— — TheMurrow Editorial
What follows is a clear map of what inflation is, how the U.S. measures it, and why it flares up—even when everyone swears they’re trying to put it out.
Inflation isn’t “high prices.” It’s the speed limit your budget keeps breaking
Inflation is a broad-based rise in prices over time, which means each dollar buys less than it used to. Economists call that a decline in purchasing power. Households feel it most sharply when paychecks fail to keep pace: the economy can be growing on paper while families feel poorer in practice.
The most common misunderstanding is treating inflation as the same thing as expensive goods. High prices can persist even after inflation slows. Inflation is the rate of change; your grocery bill is the level. A slowdown in inflation means prices are still rising—just not as quickly.
That’s why the phrase “inflation is going down” often produces a backlash. People hear “down” and expect reversal. What they’re actually being told is that the climb has become less steep.
The most common misunderstanding is treating inflation as the same thing as expensive goods. High prices can persist even after inflation slows. Inflation is the rate of change; your grocery bill is the level. A slowdown in inflation means prices are still rising—just not as quickly.
That’s why the phrase “inflation is going down” often produces a backlash. People hear “down” and expect reversal. What they’re actually being told is that the climb has become less steep.
Disinflation vs. deflation: the difference between “less bad” and “actually cheaper”
Economists use two terms that sound academic but describe real life:
- Disinflation: inflation is still positive, but cooling. Prices continue to rise, just more slowly.
- Deflation: overall prices fall across the economy.
Deflation is rare in modern U.S. history outside severe downturns. Disinflation is far more common—and politically trickier—because it provides statistical “improvement” without felt relief.
- Disinflation: inflation is still positive, but cooling. Prices continue to rise, just more slowly.
- Deflation: overall prices fall across the economy.
Deflation is rare in modern U.S. history outside severe downturns. Disinflation is far more common—and politically trickier—because it provides statistical “improvement” without felt relief.
Why the definition matters for your life, not just for economists
When you understand inflation as a speed (not a price level), the day-to-day experience snaps into focus. Rent can remain painfully high even if rent inflation slows. Restaurant meals can stay expensive even if food inflation cools. A family’s mood doesn’t follow a chart; it follows the cash left in the checking account after essentials clear.
The numbers you see: CPI, PCE, and the quiet fight over what “counts”
Americans experience inflation through the prices they pay. Policymakers experience inflation through the indexes they track. Those indexes overlap, but they don’t tell identical stories.
The main ones—CPI and PCE—are produced by different agencies, built differently, and used for different purposes. Knowing which is which helps readers interpret headlines that otherwise feel like contradictions.
The main ones—CPI and PCE—are produced by different agencies, built differently, and used for different purposes. Knowing which is which helps readers interpret headlines that otherwise feel like contradictions.
CPI: the headline that shapes everyday arguments
The Consumer Price Index (CPI) is produced by the Bureau of Labor Statistics (BLS). It tracks price changes for a representative basket of goods and services purchased by typical “urban consumers.”
CPI is the figure most Americans recognize because it shows up in cost-of-living conversations, contract escalators, and wage negotiations. The BLS even publicizes the rhythm of its releases: January 2026 CPI data will be released February 11, 2026 at 8:30 a.m. ET, a reminder that “inflation” is not a vague condition but a frequently updated measurement.
CPI is the figure most Americans recognize because it shows up in cost-of-living conversations, contract escalators, and wage negotiations. The BLS even publicizes the rhythm of its releases: January 2026 CPI data will be released February 11, 2026 at 8:30 a.m. ET, a reminder that “inflation” is not a vague condition but a frequently updated measurement.
Feb 11, 2026 — 8:30 a.m. ET
BLS release time for January 2026 CPI data, underscoring how regularly inflation is measured and revised.
PCE: the Fed’s preferred yardstick—and why it differs
The Federal Reserve leans more heavily on the Personal Consumption Expenditures (PCE) Price Index, produced by the Bureau of Economic Analysis (BEA). PCE covers a broader set of expenditures and can reflect consumer substitution more naturally—for instance, households switching from steak to chicken when prices jump.
The BEA’s core PCE (excluding food and energy) showed +2.8% year-over-year in November 2025, per the BEA series table as of its January 22, 2026 release. The BEA also notes the next update schedule: the release that includes December 2025 PCE inflation is scheduled for February 20, 2026 at 8:30 a.m. ET.
The BEA’s core PCE (excluding food and energy) showed +2.8% year-over-year in November 2025, per the BEA series table as of its January 22, 2026 release. The BEA also notes the next update schedule: the release that includes December 2025 PCE inflation is scheduled for February 20, 2026 at 8:30 a.m. ET.
+2.8%
Core PCE year-over-year in November 2025, as reported in the BEA series table (release dated January 22, 2026).
Feb 20, 2026 — 8:30 a.m. ET
BEA scheduled release time that includes December 2025 PCE inflation.
CPI and PCE measure the same economy through different lenses—so the story can look calmer or hotter depending on where you stand.
— — TheMurrow Editorial
Headline vs. core: what gets excluded—and what families can’t ignore
Headline inflation includes all categories. Core inflation excludes food and energy because they swing sharply month to month, which can obscure underlying trends.
Core has value as a signal. It can help forecasters and central bankers see the temperature beneath the surface. Still, households can’t exclude groceries or gasoline from life. A smart way to frame the distinction: core is often the better guide to trend; headline is often closer to lived experience.
Core has value as a signal. It can help forecasters and central bankers see the temperature beneath the surface. Still, households can’t exclude groceries or gasoline from life. A smart way to frame the distinction: core is often the better guide to trend; headline is often closer to lived experience.
Demand-pull inflation: when spending power outpaces what the economy can deliver
The cleanest explanation of demand-driven inflation is the old phrase: too much money chasing too few goods. When consumers and businesses spend strongly relative to the economy’s capacity to produce, sellers gain pricing power.
Demand-pull inflation often follows periods of strong labor markets and income growth. It can also be amplified by easy credit and loose financial conditions that encourage borrowing and spending. Fiscal policy—stimulus programs or tax cuts—can play a role too, though not automatically. Context matters: a policy that boosts demand during slack times may lift growth without much inflation; a similar boost during tight capacity can push prices.
Demand-pull inflation often follows periods of strong labor markets and income growth. It can also be amplified by easy credit and loose financial conditions that encourage borrowing and spending. Fiscal policy—stimulus programs or tax cuts—can play a role too, though not automatically. Context matters: a policy that boosts demand during slack times may lift growth without much inflation; a similar boost during tight capacity can push prices.
The real-world version: why it feels like the economy is “fine” but you aren’t
Demand-pull inflation is psychologically frustrating because it can coincide with a strong job market. People can be employed and still feel squeezed. In that scenario, the macro story says “healthy economy,” while the micro story says “my wage didn’t stretch like it used to.”
The tension is often distributional. Not everyone’s income rises at the same pace, and price increases hit households differently depending on spending patterns—especially for housing, transportation, and food.
The tension is often distributional. Not everyone’s income rises at the same pace, and price increases hit households differently depending on spending patterns—especially for housing, transportation, and food.
Practical takeaway: watch the labor market and credit conditions
For readers trying to anticipate where inflation pressure might reappear, two signals are worth tracking:
- Wage and employment strength (spending capacity)
- Borrowing conditions (how easy it is to finance consumption and investment)
Neither guarantees inflation, but both shape the environment where sellers can raise prices without losing customers.
- Wage and employment strength (spending capacity)
- Borrowing conditions (how easy it is to finance consumption and investment)
Neither guarantees inflation, but both shape the environment where sellers can raise prices without losing customers.
Key Insight
To anticipate demand-driven inflation, track wages/jobs and credit conditions together—pricing power grows when both remain strong.
Cost-push inflation: when the economy’s inputs get pricier—then the bill arrives
Cost-push inflation is inflation driven by higher production and delivery costs. When energy, shipping, raw materials, or labor become more expensive, businesses face a choice: absorb the hit through lower margins, or raise prices.
The usual triggers are familiar because they are often dramatic:
- Energy spikes (oil and gas)
- Supply-chain disruptions
- Commodity price jumps (metals, food inputs)
- Natural disasters that disrupt production and distribution
Cost-push inflation tends to arrive as a series of unpleasant surprises. It’s less about exuberant spending and more about constraints.
The usual triggers are familiar because they are often dramatic:
- Energy spikes (oil and gas)
- Supply-chain disruptions
- Commodity price jumps (metals, food inputs)
- Natural disasters that disrupt production and distribution
Cost-push inflation tends to arrive as a series of unpleasant surprises. It’s less about exuberant spending and more about constraints.
Producer prices as a warning flare: what PPI can tell you before CPI does
One way economists track cost pressure is through upstream price data, such as the Producer Price Index (PPI). Producer prices don’t always translate into consumer prices, but they can foreshadow trouble.
A recent datapoint illustrates the point: December 2025 PPI rose 0.5% month-over-month and was up 3.0% year-over-year, with services inflation highlighted as a driver, according to reporting on the release. Those input costs can feed into consumer prices later, depending on competitive dynamics and consumer tolerance.
A recent datapoint illustrates the point: December 2025 PPI rose 0.5% month-over-month and was up 3.0% year-over-year, with services inflation highlighted as a driver, according to reporting on the release. Those input costs can feed into consumer prices later, depending on competitive dynamics and consumer tolerance.
0.5%
December 2025 PPI month-over-month increase; reporting highlighted services inflation as a key driver.
3.0%
December 2025 PPI year-over-year increase; upstream costs may later pass through to consumers depending on competition and demand.
Case study: why “services” matter more than a single commodity shock
When consumers think about inflation, they often picture gas or groceries. Yet services—health care, housing-related costs, insurance, repairs, travel—can be stickier. A commodity price can fall quickly; a service price often doesn’t.
For households, this changes what “improving inflation” looks like. Cheaper gasoline feels immediate. Cooling service-sector inflation feels like a slow easing of pressure, sometimes barely noticeable month to month.
For households, this changes what “improving inflation” looks like. Cheaper gasoline feels immediate. Cooling service-sector inflation feels like a slow easing of pressure, sometimes barely noticeable month to month.
Expectations: the psychology channel that can turn inflation into a habit
Inflation isn’t only about today’s prices. It’s also about what people think tomorrow’s prices will be. Expectations can make inflation more persistent because they shape behavior—wage demands, price-setting, rent negotiations, and purchasing decisions.
If workers expect inflation to continue, they push for higher wages. If firms expect higher costs, they raise prices earlier. If landlords expect future inflation, they set rents accordingly. These behaviors can reinforce one another, creating a loop that is difficult to break without a shift in confidence.
If workers expect inflation to continue, they push for higher wages. If firms expect higher costs, they raise prices earlier. If landlords expect future inflation, they set rents accordingly. These behaviors can reinforce one another, creating a loop that is difficult to break without a shift in confidence.
What consumers say they expect: two surveys worth knowing
The New York Fed’s Survey of Consumer Expectations offers a regular snapshot of public beliefs. In December 2025, the survey found median one-year-ahead inflation expectations increased to 3.4%. That number doesn’t determine inflation by itself, but it signals how people are interpreting what they see at the store and in the news.
The University of Michigan’s consumer sentiment work adds texture. In January 2026, sentiment improved modestly, but the Institute’s release emphasized that budget pressure from high prices remains widespread, with high prices eroding living standards as a key theme.
The University of Michigan’s consumer sentiment work adds texture. In January 2026, sentiment improved modestly, but the Institute’s release emphasized that budget pressure from high prices remains widespread, with high prices eroding living standards as a key theme.
3.4%
New York Fed median one-year-ahead inflation expectations in December 2025, reflecting how consumers interpret price pressures.
Inflation becomes harder to kill when everyone—from workers to landlords—starts budgeting for it as normal.
— — TheMurrow Editorial
Practical takeaway: expectations often move before the data does
For readers, expectations are an early-warning system. A rise in inflation expectations can precede tougher wage bargaining, more aggressive price increases, and a shift in consumer behavior—like stockpiling or pulling forward big purchases.
None of that guarantees an inflation wave, but it explains why central banks talk so much about “anchoring” expectations. If beliefs drift upward, policy has to work harder to pull reality back down.
None of that guarantees an inflation wave, but it explains why central banks talk so much about “anchoring” expectations. If beliefs drift upward, policy has to work harder to pull reality back down.
Editor’s Note
Expectations don’t mechanically “cause” inflation—but they change bargaining, pricing, and purchase timing in ways that can reinforce a trend.
Profits, margins, and the “greedflation” argument: the debate serious people still argue about
A politically potent claim has shadowed recent inflation: that it is “profit-led,” driven by companies expanding margins under the cover of disruption. The argument resonates because consumers have seen prices rise quickly while some firms reported strong profits.
Economists disagree on how far the idea can be generalized. Some argue that market power and pricing discretion can amplify inflation, especially when consumers have come to expect increases and tolerate them. Others counter that rising margins may reflect strong demand, volatile input costs, or shifting consumer mix—factors that aren’t reducible to moral judgment.
Economists disagree on how far the idea can be generalized. Some argue that market power and pricing discretion can amplify inflation, especially when consumers have come to expect increases and tolerate them. Others counter that rising margins may reflect strong demand, volatile input costs, or shifting consumer mix—factors that aren’t reducible to moral judgment.
How margins show up in the data—sometimes more clearly than you’d expect
One reason the debate persists is that certain price measures can reflect margins directly in particular sectors. Reporting on the December 2025 PPI highlighted services components tied to trade services margins as notable contributors.
That matters because “trade services” pricing can capture the spread between what a seller pays and what a seller charges. It’s not simply the cost of inputs; it’s the markup channel.
That matters because “trade services” pricing can capture the spread between what a seller pays and what a seller charges. It’s not simply the cost of inputs; it’s the markup channel.
Two perspectives that can both be true
A fair reading allows for nuance:
- In some markets, firms may have used a chaotic period to raise prices beyond cost increases, especially where competition is limited.
- In other markets, margins may rise because demand is strong, supply is constrained, and costs are unpredictable—conditions where businesses price defensively to avoid getting caught short.
The honest conclusion from the available evidence is narrower than the rhetoric: margin dynamics can contribute to inflation in specific categories and moments, but broad claims require industry-by-industry proof. One sector’s story isn’t the whole economy’s story.
- In some markets, firms may have used a chaotic period to raise prices beyond cost increases, especially where competition is limited.
- In other markets, margins may rise because demand is strong, supply is constrained, and costs are unpredictable—conditions where businesses price defensively to avoid getting caught short.
The honest conclusion from the available evidence is narrower than the rhetoric: margin dynamics can contribute to inflation in specific categories and moments, but broad claims require industry-by-industry proof. One sector’s story isn’t the whole economy’s story.
Practical takeaway: ask “costs, competition, or margins?”
When readers confront a price jump, three questions clarify the cause:
1. Did input costs rise?
2. Is competition limited (few sellers, high switching costs)?
3. Are markups widening in the relevant category?
That framework won’t settle dinner-table debates, but it turns them from slogans into analysis.
1. Did input costs rise?
2. Is competition limited (few sellers, high switching costs)?
3. Are markups widening in the relevant category?
That framework won’t settle dinner-table debates, but it turns them from slogans into analysis.
A quick diagnostic for any price jump
- 1.Did input costs rise?
- 2.Is competition limited (few sellers, high switching costs)?
- 3.Are markups widening in the relevant category?
Reading the next inflation headline like an adult: what to watch, what not to expect
Inflation data is released on a schedule. Markets react in minutes. Politics reacts in hours. Household budgets react over months. The gap between those time horizons is where confusion thrives.
Start with the calendar. The BLS will release January 2026 CPI on February 11, 2026 at 8:30 a.m. ET. The BEA will publish the release including December 2025 PCE inflation on February 20, 2026 at 8:30 a.m. ET. Those are not just dates for traders; they’re checkpoints for anyone trying to understand whether price pressures are easing or reaccelerating.
Start with the calendar. The BLS will release January 2026 CPI on February 11, 2026 at 8:30 a.m. ET. The BEA will publish the release including December 2025 PCE inflation on February 20, 2026 at 8:30 a.m. ET. Those are not just dates for traders; they’re checkpoints for anyone trying to understand whether price pressures are easing or reaccelerating.
What “better inflation” looks like—and what it doesn’t
Better inflation usually looks like a slower pace of increases, not a rollback of the price level. That’s why disinflation can coexist with continued frustration. If your rent went up sharply over the past few years, “only slightly rising now” still means you’re paying the new high level.
Deflation—prices broadly falling—would feel like relief in the short term but is rare and often associated with economic distress. Most policy aims for stable, low inflation rather than falling prices.
Deflation—prices broadly falling—would feel like relief in the short term but is rare and often associated with economic distress. Most policy aims for stable, low inflation rather than falling prices.
Practical checklist for readers scanning a report
When you read the next CPI or PCE story, focus on:
- Whether the change is broad-based or concentrated in a few categories
- Core vs. headline (trend signal vs. lived essentials)
- Upstream pressure (PPI signals that may later affect consumer prices)
- Expectations (whether the public is starting to “bake in” inflation again)
A disciplined reading won’t make groceries cheaper. It will protect you from the whiplash of overheated interpretations.
- Whether the change is broad-based or concentrated in a few categories
- Core vs. headline (trend signal vs. lived essentials)
- Upstream pressure (PPI signals that may later affect consumer prices)
- Expectations (whether the public is starting to “bake in” inflation again)
A disciplined reading won’t make groceries cheaper. It will protect you from the whiplash of overheated interpretations.
Inflation-report checklist
- ✓Whether the change is broad-based or concentrated in a few categories
- ✓Core vs. headline (trend signal vs. lived essentials)
- ✓Upstream pressure (PPI signals that may later affect consumer prices)
- ✓Expectations (whether the public is starting to “bake in” inflation again)
Key takeaway to remember
Cooling inflation is progress, but it usually means prices rise more slowly, not that the price level rolls back.
Conclusion: the point isn’t to memorize acronyms—it’s to understand the pressure on your life
Inflation is not one villain. It’s a set of forces—demand, supply, expectations, and, sometimes, margins—colliding in the price tags we all face. The American economy can cool on paper while households still feel punished by the new level of costs.
CPI and PCE are not competing realities; they are competing instruments. Core inflation is not “the inflation that matters”; it’s a tool for spotting trend. Producer prices don’t dictate consumer prices, but they can warn you about future pass-through. Expectations don’t change your rent directly, but they change the bargaining environment that sets the next rent increase.
A mature view of inflation holds two truths at once: the rate matters, and the level hurts. Cooling inflation is progress. It just isn’t the same thing as going back.
CPI and PCE are not competing realities; they are competing instruments. Core inflation is not “the inflation that matters”; it’s a tool for spotting trend. Producer prices don’t dictate consumer prices, but they can warn you about future pass-through. Expectations don’t change your rent directly, but they change the bargaining environment that sets the next rent increase.
A mature view of inflation holds two truths at once: the rate matters, and the level hurts. Cooling inflation is progress. It just isn’t the same thing as going back.
T
About the Author
TheMurrow Editorial is a writer for TheMurrow covering explainers.
Frequently Asked Questions
What’s the simplest definition of inflation?
Inflation is a broad rise in prices over time, which reduces the purchasing power of money. Put plainly: when inflation is high, each dollar buys less than it used to. That’s different from the idea that prices are “high”; inflation is the speed of price increases, not the price level itself.
If inflation goes down, why don’t prices go down too?
Because “inflation going down” often means disinflation: prices still rise, just more slowly. Lower inflation reduces the pace of increases from today forward, but it usually doesn’t reverse past increases. Broad price declines across the economy are called deflation, which is rare and often linked to serious economic weakness.
What’s the difference between CPI and PCE?
CPI, from the BLS, tracks a basket of goods and services for typical urban consumers and is widely cited in cost-of-living debates. PCE, from the BEA, covers a broader set of spending and can reflect substitution when consumers change what they buy. The Fed tends to emphasize PCE when judging inflation trends.
What does “core inflation” mean, and should I care?
Core inflation excludes food and energy because they can swing sharply and obscure underlying trends. It can be useful for spotting persistent inflation pressure. Still, households can’t ignore groceries or gasoline, so headline inflation often matches lived experience more closely. Core is best understood as a diagnostic tool, not a dismissal of essentials.
What causes inflation—demand or supply?
Often both. Demand-pull inflation happens when spending is strong relative to what the economy can produce. Cost-push inflation comes from higher input costs—energy, commodities, shipping, or disruptions—pushing businesses to raise prices. Many inflation episodes are mixed, with demand and supply interacting over time.
Do consumer expectations really affect inflation?
They can. If people expect prices to keep rising, workers bargain harder for wages, firms raise prices sooner, and landlords may set higher rents. Surveys capture this psychology: the New York Fed reported one-year-ahead inflation expectations at 3.4% in December 2025. Expectations don’t mechanically cause inflation, but they influence behavior that can reinforce it.
