What it means
Inflation is the year-over-year change in a basket of consumer goods and services. CPI (Consumer Price Index) and PCE (Personal Consumption Expenditures) are the two main measures in the U.S. PCE is the Fed's preferred gauge.
Why it matters
Central banks set policy primarily to control inflation. Persistent inflation above the 2% target forces rate hikes; persistent inflation below it allows rate cuts. The market spends most of its time pricing the implied path of inflation.
How to use it
Look at core measures (excluding food and energy) for the underlying signal. Watch services inflation specifically - it's stickier than goods inflation and is the part the Fed actually has trouble controlling.
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