July Inflation Above Fed's Target

The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) for July 2007 was 2.4% higher than July 2006.

The core CPI, which excludes food and energy, was 2.2%. This is the inflation rate that is watched by the FOMC when it decides at its monthly meetings whether to raise the Fed Funds Rate. The 2.2% rate has remained unchanged since the April rate of 2.3%. It is still a little higher than the unofficial targeted inflation rate of 2%. (Source: Remarks by Governor Ben S. Bernanke, October 17, 2003; BLS Consumer Price Index: July 2007)

What It Means to You

Another way to look at this is that inflation is currently at 2.4% By using the nifty BLS inflation calculator, you will find that this means that it is as if something that cost $100 last year now costs $102.40. It also means you need a 2.4% raise just to stay even.

Stock market analysts and investors are hoping that the Fed will lower the Fed Funds rate to offset the Banking Liquidity Crisis. However, the Fed may be unlikely to do so as long as the core inflation rate remains above the target.

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