The Consumer Price Index tracks the price of a fixed basket of goods and services that households buy: food, rent, fuel, insurance, holidays and so on. Inflation is the percentage change in that index, usually over twelve months.
Headline inflation includes everything, including volatile items such as fuel and fruit. Underlying measures strip out the noise to show the persistent trend.
Why it matters
Inflation erodes the value of money and savings, and unexpected inflation redistributes wealth from lenders to borrowers. Central banks target low, stable inflation (2–3% in Australia, 2% in the US) and raise rates when it runs above target.
For investors, inflation determines the real return: a 5% return with 4% inflation leaves 1% of extra purchasing power.
See the data: Australian inflation, US inflation.
General information, not advice.