The latest U.S. inflation numbers are out and they reveal that prices are increasing. According to the Federal Reserve Bank of San Francisco, inflation in the US is higher than the majority of the rest of the world by more than 3 percentage points. This could explain why the US has outpaced the average world rate of inflation in the past decade. Oscar Jorda (the bank’s senior policy advisor) cautions against reading too much into these percentages. Still, the general picture is clear.
Different factors affect the inflation rate. The CPI is the price index 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 services and goods, but it doesn’t include non-direct expenditure, which makes the CPI less stable. This is why data on inflation should always be considered in relation to other data, 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 shows how prices have risen. This index is a valuable tool for budgeting and planning. Consumers are likely to be concerned about the price of products and services. However it is crucial to understand why prices are increasing.
Production costs rise which, in turn, increases prices. This is often referred to as cost-push inflation. It is a rising cost of raw materials, including petroleum products or precious metals. It also involves agricultural products. It is important to remember that when the cost of a commodity increases, it can also impact 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 goods and services in a year. The real rate of return (CRR), is a better estimation of the nominal annual cost of investment. With this in mind, the next time you are planning to purchase stocks or bonds make sure to use the actual inflation rate of the commodity.
At present the Consumer Price Index is 8.3 percent higher than the year before. This is the highest rate for a year since April 1986. Because rents make up an important portion of the CPI basket, inflation is likely to continue to rise. Additionally, rising home prices and mortgage rates make it more difficult for many people to buy an apartment which in turn increases the demand for rental housing. Furthermore, the potential for rail workers affecting the US railway system could result in disruptions in the transport of goods.
The Fed’s short-term rate of interest has increased to the 2.25 percent level in the past year from its near zero-target rate. According to the central bank, inflation is predicted to increase by just half a percent in the next year. It’s not clear whether this increase is enough to control the rising inflation.
Core inflation excludes volatile oil and food prices, and is around 2 percent. The core inflation rate is typically reported on a year-over-year basis and is what the Federal Reserve means when it declares its inflation target to be 2percent. The core rate has been in the lower range of its target for a long period of time. However, it has recently begun to increase to a point that has been threatening businesses.