The latest U.S. inflation numbers are out and they reveal that prices are going up. According to the Federal Reserve Bank of San Francisco inflation rate in the US is higher than most of the rest of the world by more than 3 percentage points. This could be the reason why the US inflation rate is higher than the average worldwide rate for the past decade. Oscar Jorda (the bank’s senior policy advisor) cautions against interpreting too much into these numbers. Still, the general picture is evident.
Different factors influence the rate of inflation. The CPI is the price index used by the government to determine inflation. It is calculated by the Labor Department through a survey of households. It is a measure of the amount spent on goods and services but does not include non-direct spending which makes the CPI less stable. Inflation data should be viewed in the context of the overall economy and not in isolation.
The Consumer Price Index, which measures changes in prices of products and services is the most widely used inflation rate in the United States. The index is reviewed every month and displays how much prices have risen. This index shows the average cost of goods and services that can be useful to budget and plan. Consumers are likely to be concerned about the cost of products and services. However, it is important to understand why prices are rising.
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 for example, petroleum products and precious metals. It can also affect agricultural products. It is important to keep in mind that when the price of a commodity increase, it can also affect the value of the commodity.
Inflation figures are usually difficult to find, however there is a method that will aid in calculating the amount it costs to buy items and services over the course of a year. Using the real rate of return (CRR) is an accurate estimate of what a nominal annual investment should be. With that in mind, the next time you’re seeking to buy bonds or stocks ensure that you are using the actual inflation rate of the commodity.
The Consumer Price Index is currently 8.3 percent higher than it was one year ago. This is the highest annual rate recorded since April 1986. Inflation is expected to continue to rise as rents comprise a significant portion of the CPI basket. Inflation is also triggered by rising home prices and mortgage rates which make it more difficult to buy a home. This causes a rise in the demand for rental housing. Additionally, the possibility of railroad workers affecting the US railway system could lead to disruptions in the transport 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 rise by only half a percent in the next year. It isn’t easy to know if this increase will be sufficient to control inflation.
Core inflation is a term used to describe volatile food and oil prices and is approximately 2 percent. Core inflation is reported on a year over year basis by the Federal Reserve. This is what it means when it says that its inflation target of 2 percent is. The core rate has been below its target for a lengthy period of time. However it is now beginning to rise to a level that is threatening a number of businesses.