The latest U.S. inflation numbers are out and they indicate that prices are increasing. According to the Federal Reserve Bank of San Francisco, inflation in the US is higher than that of the rest of the world by more than 3 percentage points. That may explain why the US has surpassed the world’s average rate of inflation in the last decade. Oscar Jorda (the bank’s senior policy advisor) cautions against reading too much into these numbers. However, the overall picture is evident.
Inflation rates are determined by various factors. The CPI is the price index used by the government to measure inflation. The Labor Department calculates it by conducting surveys of households. It is a measure of the amount spent on goods and services but does not include non-direct expenses that makes the CPI less stable. Inflation data should be considered in relation to other data and not as a stand-alone figure.
The Consumer Price Index is the most commonly used inflation rate in the United States, which measures the changes in the cost of goods and services. The index is updated each month and displays how much prices have increased. The index gives the average cost of goods and services, which is useful for budgeting and planning. Consumers are likely to be worried about the cost of goods and services. However it is essential to know why prices are increasing.
Costs of production rise which, in turn, increases prices. This is sometimes called cost-push inflation. It is a rising cost of raw materials, such as petroleum products or precious metals. It also involves agricultural products. It is important to note that when a commodity’s prices increase, it can also affect the price of its product.
Inflation data is often hard to find, however there is a method that will assist you in calculating how much it costs to purchase products and services throughout the year. Using the real rate return (CRR) is an accurate estimate of what a nominal annual investment should be. With that in mind the next time you are planning to purchase stocks or bonds make sure to use the actual inflation rate of the commodity.
Presently the Consumer Price Index is 8.3 percent higher than the year before. This was the highest annual rate since April 1986. Inflation is expected to continue to rise because rents make up a large portion of the CPI basket. Additionally the rising cost of housing and mortgage rates make it more difficult for many people to buy homes which increases the demand for rental housing. Further, the potential of rail workers impacting the US railway system could cause disruptions in the transportation of goods.
From its near zero-target rate the Fed’s short-term interest rate has risen this year to 2.25 percent. According to the central bank, inflation is expected to increase by just one-half percent over the next year. It’s not clear whether this increase will be enough to stop the rise in inflation.
Core inflation excludes volatile food and oil prices and is about 2%. Core inflation is reported on a year to one-year basis by the Federal Reserve. This is what it means when it declares that its inflation target of 2% is. The core rate has been in the lower range of its goal for a long period of time. However it has recently begun to increase to a point that is threatening many businesses.