Inflation

## Inflation

Inflation is the sustained increase in the general price level. It directly impacts the real value of wages: if your salary doesn't keep pace with inflation, you're effectively taking a pay cut.

### Measurement

| Index | Scope | Used By |
|-------|-------|---------|
| CPI (Consumer Price Index) | Consumer goods/services basket | Most countries |
| PCE (Personal Consumption Expenditures) | Broader, chain-weighted | US Federal Reserve |
| HICP (Harmonised CPI) | EU standardized | ECB |
| Core inflation | Excludes food and energy | Central banks |

### Impact on Salary

- A salary increase below the inflation rate is a real-terms pay cut.
- High inflation erodes savings and fixed-income sources.
- Central bank targets are typically 2% (US Fed, ECB, Bank of England).

### Salary Negotiation Context

In periods of high inflation, requesting a COLA (cost-of-living adjustment) is reasonable. A 3% raise when inflation is 5% means a 2% real pay decrease.