Tag Archives: Consumer Price Index

Persistent Inflation and Loss of Purchasing Power

Posted on by

U.S. Consumer Price Index (CPI) data was hotter than expected.

March 2024 U.S.CPI annual inflation rose 3.5%, above expectations of 3.4%.

Core CPI inflation increased 3.8% year-over-year (Y/Y), compared to forecasts for a gain of 3.7%.

The March 2024 Consumer Price Index for All Urban Consumers (CPI-U) report marked a third consecutive 0.4% month-over-month (MoM) increase. On a year-over-year (YoY) basis, inflation rose by a stronger-than-expected 3.5% in March

  • The slightly stronger March Consumer Price Index (CPI) report was driven by rises in shelter and energy prices.
  • March’s stronger year-over-year (YoY) rise in the headline CPI suggests the path to the Fed’s 2% target could take longer than expected.

Persistent Inflation occurs when the U.S. money supply grows more rapidly (to pay for huge fiscal deficits) than the country’s economic output.

Money Supply and Inflation:

When the Federal Reserve (the Fed) increases the money supply, it leads to inflation.

Imagine an economy with $100 and 100 bananas. If the government increases the money supply by 10% to $110, but the banana output only grows by 5% to 105 bananas, we have more money chasing fewer goods. As a result, the average price per banana increases from $1 to roughly $1.05. Thus, the purchasing power of the currency is reduced.

The quantity theory of money (QTM) suggests that the value of money is determined by supply and demand. When the money supply grows faster than economic output, inflation occurs.

Monetarist View:

Monetarists believe that inflation results from too many dollars chasing too few goods. As the money supply grows, the value of money decreases due to supply and demand dynamics.

In summary, managing the money supply is imperative for the Fed. Too much growth can lead to persistent inflation, affecting the purchasing power of the dollar.

April’s Consumer Price Index and Inflation

Posted on by

CPI year-over-year inflation 4.9% as the economy showed signs of cooling 

Consumer prices in the U.S. rose 0.4% from March to April, up from 0.1% from February to March. Compared with a year earlier, prices climbed 4.9%, down just slightly from March’s year-over-year increase.

The nation’s inflation rate has steadily cooled since peaking at 9.1% last June but remains far above the Federal Reserve’s 2% target rate.

The Fed is paying particular attention to core prices, which exclude volatile food and energy costs and are regarded as a better gauge of longer-term inflation trends.

The Federal Reserve aggressively raised rates for more than a year to try to tame inflation by slowing economic activity, and indicated last week it might be done lifting them for now.

Core prices rose 0.4% from March to April, the same as from February to March. It was the fifth straight month that core prices have risen by 0.4% or more. Increases at that pace are far above the Fed’s 2% target.

Compared with a year ago, core prices rose 5.5%, just below a yearly increase of 5.6% in March.

Unlike the prices for products, the costs of services — from restaurant meals to auto insurance, dental care to education — are still surging. A major reason is that companies have had to raise pay in those industries to find and retain workers.

Federal Reserve officials say that fast-rising wages, while good for workers take home income, have contributed to higher costs in services industries because labor makes up a significant portion of there costs.

January 2023 CPI Inflation Grew at 6.4% annual rate

Posted on by

January 2023 consumer price index (CPI) report showed that inflation grew at a 6.4% annual rate, slightly higher than expected, reports CNBC.

Stubbornly high January inflation reading and the December CPI report was revised to show a slight gain instead of a decline was largely better than feared, but at the same time unlikely to cause the Fed to back off from its tightening campaign.

“While there were no major surprises in today’s CPI reading, it is a reminder that while inflation has peaked it could be a while before we see it moderate to normal levels,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment office.

“The question remains if inflation will be able to fall to the Fed’s target levels with the labor market as tight as it currently is,” he added. “That could be the recipe for a soft landing, but it remains to be seen when the Fed will shift away from rate hikes and if the labor market will lose its resiliency.”

References:

  1. https://www.cnbc.com/2023/02/13/stock-market-today-live-updates.html

Invest with a purpose and a strategy. Pay yourself first.

The purpose of a system is to continue to play the game.

Consumer Price Index Jumped 7.1% in November

Posted on by

The consumer price index (CPI), a key inflation barometer, jumped by 7.1% in November from a year earlier, the U.S. Bureau of Labor Statistics (BLS) reported. The CPI measures the year-to-year change in prices paid by consumers for housing, food and fuel. The BLS uses the CPI to track price changes for 80,000 goods and services.

In November, inflation moderated from its recent 9.1% peak in June 2022 but still remain higher than any point since the early 1980s. Consumer prices for goods and services have been rising at their fastest rate in four decades.

Although economists expected in November a 7.3% annual increase in inflation, a decline in the annual inflation rate doesn’t mean prices fell for goods and services; it just means prices aren’t rising as quickly.

How to Protect Your Money from Inflation

When inflation is rising at a rate higher than normal, here are steps you can take to protect the purchasing power of your dollars.

  • Trim your expenses. To minimize the impact of inflation, review your spending and identify areas to reduce or eliminate completely. It will free up money to invest so you can be better prepared for the future.
  • Wait to pay off low-interest debt. Paying off debt is usually good, but you may want to hold off on making extra payments if you have low-interest debt. Your debt becomes less expensive due to inflation. The extra money may be better used for other purposes—like paying off higher-interest loans.
  • Invest your money. Inflation causes your savings to be worth less over time. To hedge against inflation, you need to invest your money in the stock market. If the prospect of investing is scary, consider a diversified portfolio of index funds to lower your risk levels.

Inflation has ruined everything from going out to buying holiday presents, but, as recent signs show, it may finally be starting to cool in at least some segments of the economy. For example, gas prices are dropping very quickly.

References:

  1. https://www.forbes.com/advisor/investing/is-inflation-good-or-bad/

US inflation cools in October.

Posted on by

Overall inflation as measured by CPI rose 7.7% year-over-year (YoY), below the 7.9% estimate.

The annual inflation rate fell to 7.7 percent in October from 8.2 percent in September, according to the consumer price index (CPI), a closely watched inflation gauge. Economists expected the annual inflation rate to fall to 7.9 percent, according to consensus projections.

Core CPI, which excludes volatile food and energy prices, increased 6.3% YoY, below the 6.5% YoY change economists expected to see.

The October CPI report is an encouraging sign for the U.S. economy as policymakers rush to bring down inflation without causing a recession. While decline in inflation will not be enough to keep the Federal Reserve from raising rates, it may allow the bank to do so at a slower pace.

References:

  1. https://thehill.com/policy/finance/3729055-inflation-fell-to-7-7-percent-annual-increase-in-october/

Inflation…Highest Level in 40 years

Posted on by

Inflation is at its highest level in 40 years as December prices rose 7 percent, compared to a year earlier

As a reaction to the COVID-19 pandemic and subsequent shutting down of the economy, Congress and the Federal Reserve responded with a wave of fiscal and monetary stimulus which was and remains without historical precedent.

Thus, we are in the midst of a fiscal and monetary experiment which has no direct antecedents. This renders all economic theories and financial forecasting hugely speculative.

As the second year of the pandemic fades away, Americans are experiencing the ravages of inflation. Prices, as depicted by the Consumer Price Index (CPI*), rose at the fastest pace in 40 years in December, increasing 7 percent over the same period a year ago, reported by the U.S. Bureau of Labor Statistics. The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services.

Correspondingly, calendar year 2021 will go down as the worst year for inflation since 1981, as broken supply chains and higher energy prices collided with high consumer demand for used cars and construction materials, according to the Washington Post.

The energy index rose 29.3 percent over the last year, and the food index increased 6.3 percent, according to U.S. Bureau of Labor.

Higher prices have permeated into just about everything American households and businesses buy, raising alarms for policymakers at the Federal Reserve and White House that inflation has spread throughout the greater economy, the Washington Post reported. Additionally, officials within the Federal Reserve and President Biden administration expect high inflation will persist through much of calendar year 2022.

Federal Reserve Chairmen Jerome Powell said it was essential to get prices down to more sustainable and stable levels to ensure a lasting recovery. “If inflation does become too persistent, if these high levels of inflation become too entrenched in the economy or people’s thinking, that will lead to much tighter monetary policy from us, and that could lead to a recession and that would be bad for workers,” Powell told Congressional lawmakers.

References:

  1. https://www.bls.gov/news.release/cpi.nr0.htm
  2. https://www.washingtonpost.com/business/2022/01/12/december-cpi-inflation/
  3. https://www.bls.gov/cpi/
  4. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm

* The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.