In the late 1970s, when the U.S. inflation rate reached about 10 percent per year, inflation dominated debates over economic policy. And even though inflation has been low over the past decade, it remains a closely watched macroeconomic variable. One study found that inflation is the economic term mentioned most often in U.S. newspapers (far ahead of second-place finisher unemployment and third-p lace finisher productivity).

Inflation is closely watched and widely discussed because it is thought to be a serious economic problem. But is that true? And if so, why?