The most recent U.S. inflation numbers are out and they reveal that prices are rising. Inflation in the US is outpacing most of the world by over 3 percentage points according to the Federal Reserve Bank of San Francisco. This may 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) cautions against taking too much faith in these percentages. The overall picture is evident.
Different factors affect the inflation rate. The CPI is the price index that is used by the government to determine inflation. The Labor Department calculates it by conducting a survey of households. It is a measure of spending on goods or services, but it does not include non-direct spending which makes the CPI less stable. This is why data on inflation should always be considered in context, rather than in isolation.
The Consumer Price Index, which tracks changes in the prices of products and services is the most widely used inflation rate in the United States. The index is updated every month and shows how prices have risen. The index provides the average cost of goods and services which is helpful for budgeting and planning. If you’re a consumer, you’re likely thinking about the cost of goods and services however, it’s crucial to know why prices are going up.
Production costs increase and this in turn increases prices. This is often referred to as cost-push inflation. It’s caused by the rising of prices for raw materials like petroleum products and precious metals. It can also affect agricultural products. It is important to remember that when a commodity’s price rises, it also affects the price of the item in question.
Inflation statistics are often difficult to come by, but there is a method that will assist you in calculating how much it costs to purchase items and services over the course of a year. The real rate of return (CRR), is a better measure of the nominal annual investment. With that in mind, the next time you are planning to purchase stocks or bonds 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 recorded since April 1986. Because rents account for a large part of the CPI basket, inflation will continue to rise. Inflation is also triggered by rising home prices and mortgage rates, which make it more difficult to buy a home. This drives up rental housing demand. Further, the potential of rail workers impacting the US railway system could cause a disruption in the transportation 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 predicted to increase only by half a percent in the coming year. It’s not clear whether this rise will be enough to stop the rise in inflation.
Core inflation excludes volatile oil and food prices and is approximately 2 percent. The core inflation rate is typically reported on a year-over-year basis and is what the Federal Reserve means when it says its inflation target is 2percent. In the past, the core rate has been below the target for a long time, but recently it has started rising to a level that has been damaging to many businesses.