Inflation is measured by the inflation rate, which is the percent change in prices from one year to another. The inflation rate can be measured a few different ways:  The US Bureau of Labor Statistics measures the inflation rate using the Consumer Price Index (CPI). The CPI measures the total cost of goods and services consumers have purchased over a certain period using a representative basket of goods, based on household surveys. Increases in the cost of that basket indicate inflation, and using a basket accounts for how prices for different goods change at different rates by illustrating more general price changes. In contrast with the CPI, the Producer Price Index (PPI) measures inflation from the producer's perspective. The PPI is a measure of the average prices producer's receive for goods and services produced domestically. It's calculated by dividing the current prices sellers receive for a representative basket of goods by their prices in a specific base year, then multiplying the result by 100. The Bureau of Economic Analysis measures the inflation rate using a third common index, the Personal Consumption Expenditures (PCE). The PCE measures price changes for household goods and services based on GDP data from producers. It's less specific than the CPI because it bases price estimates on those used in the CPI, but includes estimates from other sources, too. As with both other indices, an increase in the index from one year to another indicates inflation. The PPI is useful in its ability to forecast consumer spending and demand, but the CPI is the most common measure  and tends to have a significant influence on inflation-sensitive price forecasts.  The PCE is less well-known than the CPI, using different calculations to measure consumer spending. It's based on data from the GDP report and businesses and is generally less volatile than the CPI, because its formula accounts for potential price swings in less stable industries.