The most recent U.S. inflation numbers are out and they show that prices are still going up. According to the Federal Reserve Bank of San Francisco the rate of inflation in the US is higher than that of the of the world by more than 3 percentage points. This could explain why the US inflation rate is higher than the average global rate for the past decade. Oscar Jorda (the bank’s senior policy advisor) warns against reading too much into these figures. But the overall picture is clear.
Inflation rates are determined by a variety of factors. The CPI is the price index that is used by the government to gauge inflation. It is calculated by the Labor Department through a survey of households. It measures the amount spent on goods and services however, it does not include non-direct expenditure, which makes the CPI less stable. This is the reason why inflation data should be viewed in context, rather than in isolation.
The Consumer Price Index, which measures changes in prices of items and services is the most frequently used inflation rate in the United States. The index is regularly updated and provides a clear view of how much prices have risen. The index provides the average cost of goods and services, which is useful to budget and plan. Consumers are likely to be worried about the price of products and services. However, it is important to know why prices are rising.
Costs of production rise, which in turn raises prices. This is sometimes referred to as cost-push inflation. It is characterized by rising costs for raw materials, for example, petroleum products and precious metals. It can also involve agricultural products. It is important to remember that when the price of a commodity increases, it also affects the price of the item being discussed.
Inflation statistics are often difficult to find, but there is a method that will aid in calculating the amount it will cost to purchase items and services over the course of a year. The real rate of return (CRR), is a better estimation of the nominal annual cost of investment. Be aware of this when you’re planning to invest in bonds or stocks next time.
At present the Consumer Price Index is 8.3% above its year-earlier level. This is the highest annual rate since April 1986. Inflation is expected to continue to rise because rents constitute a large portion of the CPI basket. Inflation is also triggered by the rising cost of housing and mortgage rates which make it more difficult to buy homes. This causes a rise in rental housing demand. The potential impact of railroad workers on the US railway system could result in disruptions in the transport and movement of goods.
From its near zero-target rate, the Fed’s short term interest rate has increased this year to 2.25 percent. According to the central bank, inflation is expected to increase only by one-half percent over the next year. It is difficult to predict the extent to which this increase is enough to stop inflation.
Core inflation excludes volatile food and oil prices and is about 2 percent. Core inflation is often reported on a year-over-year basis and is what the Federal Reserve means when it states that its inflation goal is 2percent. The core rate has been in the lower range of its target for a long time. However it is now beginning to increase to a point that is threatening many businesses.