The inflation rate is an important economic indicator. It tells you how fast prices are changing in the economy. It's measured by the Consumer Price Index, or CPI. Moderate inflation is actually good for economic growth. When consumers expect prices to rise, they are more likely to buy now, rather than wait. This increases demand. Therefore, a healthy inflation rate is 2%, once the volatile effects of gas, food and oil prices are stripped out. This is known as the core inflation rate. Watching the inflation rate from month to month will help you determine where the economy is in the business cycle.
High gas prices accounted for 80% of inflation in February. During the month, prices overall rose .4%, which translated to a 2.9% increase over the year before. Commodities traders drove up oil prices, which comprise the lion's share of the cost for each gallon of gas. This happens each spring, in anticipation of a surge in demand for the summer driving season. However, in 2012 gas price spikes came early, thanks to fears of a war in Iran.
Inflation returned in January, driven by high
gas and
oil prices. However, inflation only rose .2% during the month, according to the
Consumer Price Index report.
Year-over-year, prices were up 2.9%, again driven by gas prices that were 9.7% higher than last year.
For the second month in a row, there was exactly zero
inflation. Again, falling
gas prices (as well as lower automobile and
oil prices) offset a slight increases in all other categories. Coincidentally, the core inflation rate was again 2.2% when compared
year-over-year. This is just a tad higher than the Federal Reserve's 2%
inflation target.
There was exactly zero inflation in November, as falling gas prices (a 2.4% decline) offset a slight increase in heating oil prices during the month. However, prices were 3.4% higher than in November 2010, and the core inflation rate was up 2.2% year-over-year -- a little higher than the Federal Reserve's 2% inflation rate target.
Price actually fell .1% in October, thanks to a 3.1% monthly decline gas prices. The core inflation rate, when compared to the prior year, was 2.1% -- higher than the Fed's target. That's because gas prices were 23% higher than the year before.
Inflation is slowing, as the Consumer Price Index rose .3% in September, even less than the .4% uptick in August. Increases in gas and oil prices were offset by a 1.1% decline in the cost of clothing. However, Halloween candy and your holiday meals may cost more than last year. Food is 4.7% higher than last year, thanks to a 33% increase in gas prices.
Prices rose a mere .4% in August. Most important, the core inflation rate rose 2% in the past 12 months. Why is this number so critical? It's watched by the Federal Reserve when setting monetary policy because it strips out the volatile food and gas prices. The Fed targets the core inflation rate to be at 2%, because that's healthy for the economy. When prices rise modestly, shoppers expect higher prices. They are more likely to shop now to avoid higher prices in the future. This increases demand, which spurs economic growth. The housing market is a good example of where we could use a little inflation to stimulate demand.
Oil and food prices edged up in July, but that's to be expected after their decline the past two months. With a soft economy, a greater threat is deflation. The best place to watch for that is in the year-over-year core inflation number -- which is still up a reassuring 1.8%.
Prices dropped a bit in June, thanks to a set-back in oil and gas prices. However, they were still 36% higher than the year before. Hopefully, the Dodd-Frank reform act will eliminate some of this volatility by regulating commodities trading.
Inflation edged up just .2% in May, thanks to
plummeting commodities prices that forced oil down below $100 a barrel. Although this slowing of inflation good news, prices were still 3.6% higher than last year. That's because gas and oil prices were still 36% higher when compared year-over-year.
