Current Rate - June 2014
Prices rose .3% during June, thanks to a 3.3% spike in gas price. New car prices fell .3%, and used vehicles were down .4%. Medical care service costs rose exactly zero percent, a sign that the ACA may be pushing costs down.
The critical core inflation rate, which is measured year over year, was 1.9%. This was slightly below the Federal Reserve's 2% target.
How It Affects You
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, which is reported by the Bureau of Labor Statistics (BLS) each month.
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. That's because inflation is usually driven by expectations of inflation, as pointed out by Past Fed Chair Ben Bernanke. This means that, if people and investors think prices will go up, they will buy things now, increasing demand and actually driving the prices further up. In other words, inflation is a self-fulfilling prophecy.
The FOMC also looks at the core inflation rate when it decides at its monthly meetings whether to raise the Fed funds rate. The core rate removes the volatile effects of gas, food and oil prices. The Federal Reserve sets a target rate of 2% for the core rate. When the rate is lower than the target, the Fed may use expansionary monetary policy, and lower interest rates. When the rate is higher than the 2% target, it may use contractionary monetary policy, and raise rates.
Watching the inflation rate from month to month will help you determine where the economy is in the business cycle.
The critical core inflation rate rose 2.0% year over year. It was driven by a 2.9% increase in housing costs, the biggest jump since March 2008. The headline CPI rose 2.1%.
During the month, prices rose .4%, driven by a whopping 2.3% increase in electricity. However, that was due to California's semi-annual climate change credits.
Inflation was .3% during the month, driven mainly by a 2.3% spike in gasoline prices. Year-over-year, prices rose a solid 2%. Every category, except apparel and automobiles, saw at least a 1% increase. However, the core inflation index was only up 1.8%, still below the Fed's target.
In March, falling fuel oil prices were offset by moderate price increases across the board. Despite this strength, it didn't exactly show the strong demand needed to boost hiring.
February was a repeat of January. A 4.7% increase in home heating oil prices was offset by declines elsewhere. Monthly inflation was just .1%, while the year over year core inflation rate was just 1.6%, well below the Fed's target.
Brutal winter storms pummeled the nation, driving home heating oil prices up 3.7%. Natural gas prices rose nearly as much (3.6%). Fortunately, these price jumps were offset by drops in gasoline, new cars and trucks and apparel. As a result, inflation rose a scant .1% overall.
These fuel oil and natural gas prices will drop in the spring, as will any price jumps in gasoline. That happens every year, as refineries finish their maintenance and reopen for the summer driving season. Therefore, expect inflation to remain even less of a threat.
The core inflation rate was just 1.6%.
Inflation rose .3%, the most in six months, creating fears of hyperinflation. Goldbugs caused a rally in the precious metal as a hedge. Many are concerned that the Fed's Quantitative Easing will drive quickly rising prices like that seen during the Weimar Republic in German. However, the core inflation rate was only up 1.7%, below the Fed's target.
Prices rose exactly zero in November, keeping inflation at just 1.2% for the year, thanks to a drop in gas prices. The core inflation rate was just 1.7%.
Many analysts believe QE has created an asset bubble in both stocks, which have been hitting new highs, and in bonds, driving the yield on the benchmark 10-year Treasury down to 2.5%. That's the blind spot in the Consumer Price Index, which only measures the prices of consumer goods and services. As the retail reports have shown, consumers aren't really creating the demand needed to drive up prices. That's because there's hasn't been much of an increase in wages.
Instead of inflation, there was mild deflation thanks to a 2.9% drop in gas prices. Although deflation is a threat, this won't be permanent. Gas prices normally decline in the fall, and rise in the spring. Second, the core inflation rate (without these volatile gas and food prices) was 1.7%, below the Fed's 2% target.