The Bureau of Labor Statistics reported that there was exactly zero inflation in January. In fact, the government survey reported that gas prices dropped 3% from December, and that your trip to the pump cost 1.5% less than last year. This seems contradictory to what everyone else knows -- that gas prices started rising in January, faster and earlier than last year. (For more, see Why Are Gas Prices Rising Again?)
Is the Federal government living in la-la land?Well, I can't answer that question, but I can tell you why the report seemed so out of whack. The BLS surveys 23,000 businesses every month to get the prices of 80,000 items. It's quite likely that the survey went out before gas prices started rising in mid-January.
Similarly, the prices of most other things also remained fairly flat in January. Food prices rose exactly zero percent, while, used cars and trucks rose just .2%, as did the cost of shelter and health care. The biggest cost increases were in clothing, up .8%, and transportation, up .5%.
While month-to-month prices give a good indication of where prices are rising, the true measure of inflation is in the year-over-year price increase. The CPI report showed that this measure of inflation was within the normal range. The prices of all items were 1.6% higher than last year, driven mainly by higher food prices (also up 1.6%), transportation (up 2%) and health care services (up 3.6%). In fact, gas prices were 1.5% lower than last January -- the same won't be true in February! (Source: Bureau of Labor Statistics, Consumer Price Index, February 21, 2013)
What It Means to You
In fact, you can probably expect that next month's report will show a 10% increase in gas prices for February. This will make it seem that inflation is out of control. It's not. True, food prices will also go higher, thanks to increased trucking costs. But, gas prices will start to recede by April -- as it does just about every year.
Be on guard against heavy promotion of gold as a hedge against this perceived inflation. Gold prices have dropped 6% since the beginning of the year, thanks to rising stock prices and a strengthening global economy. Gold sellers will use February's CPI report as an excuse to scare you into thinking that the Federal Reserve's quantitative easing has created rampant inflation or even hyperinflation. Gold prices may spike as speculators rush into the precious metal, but will probably return to a downward trend by the summer as oil and gas prices fall.
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- Current Inflation Rate
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Understand Quantitative Easing
- What Is QE1?
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- Operation Twist
- The Fed's QE4 Buys More Time for Fiscal Cliff Resolution