The latest U.S. inflation numbers are out and they show that prices are still increasing. Inflation in the US is ahead of the rest of the world by more than 3 percentage points according to the Federal Reserve Bank of San Francisco. This could be the reason why the US has surpassed the world’s average rate of inflation in the past decade. Oscar Jorda (the bank’s senior policy advisor) cautions against reading too much into these percentages. The overall picture is evident.
Different factors influence the inflation rate. The CPI is the price index used by the government to measure inflation. The Labor Department calculates it by surveying households. It measures spending on services or goods but does not include non-direct expenses, making the CPI less stable. Inflation data must be considered in relation to other data and not as a stand-alone figure.
The Consumer Price Index, which measures changes in prices of goods and services is the most widely used inflation rate in the United States. The index is regularly updated and provides a clear view of how much prices have increased. The index is a helpful tool to plan and budget. Consumers are likely to be worried about the price of goods and services. However it is crucial to understand the reasons why prices are rising.
The cost of production increases and prices rise. This is often referred to as cost-push inflation. It is the rising price of raw materials, like petroleum products or precious metals. It may also include agricultural products. It is important to remember that when the cost of a commodity rises, it also affects the price of the item in question.
Inflation figures are usually difficult to come by, but there is a method to aid in calculating the amount it costs to buy products and services throughout the year. Utilizing the real rate of return (CRR) is a more accurate estimate of what an annual investment of nominal value should be. With this in mind, the next time you are planning to purchase bonds or stocks ensure that you are using the actual inflation rate of the commodity.
At present, the Consumer Price Index is 8.3 percent higher than its year-earlier level. This is the highest annual rate since April 1986. Since rents comprise an important portion of the CPI basket, inflation is likely to continue to rise. Additionally the increasing cost of homes and mortgage rates make it more difficult for a lot of people to purchase a home which in turn increases the demand for rental accommodation. Further, the potential of railroad workers affecting the US railway system could lead to disruptions in the transport of goods.
The Fed’s short-term interest rate has increased to the 2.25 percent rate this year, up from its close to zero-target rate. The central bank has forecast that inflation will increase by only a half percent in the coming year. It’s difficult to tell if this increase is enough to control the inflation.
Core inflation excludes volatile oil and food prices and is about 2%. Core inflation is often reported on a year-over-year basis and is what the Federal Reserve means when it says its inflation target is at 2%. Historically, the core rate was below the target for a long time, but recently it has started rising to a level that is causing harm to many businesses.