Inflation, at the very core, is the rate at which the price level in an economy increases. It can also be called the rate at which the purchasing power of individuals is falling: as prices increase, less and less can be bought with each dollar. There are many factors that can cause inflation to increase, but two of the major ones are excessive money supply and reckless government spending.
Inflation is not a problem if it is low; but, once it escalates, it causes severe economic problems. To control inflation, central banks use different tools such as interest rates. In the U.S., the Federal Reserve targets inflation rate in the U.S. economy to be between two percent and three percent.
The inflation figures in the U.S. are reported by the Bureau of Labor Statistics (BLS) each month, for the previous month.
Since the financial crisis of 2008 and 2009, inflation in the U.S. economy has been very low. In 2013, prices increased by 1.5%, which was well below the Federal Reserve’s target. But, over the past few years, the central bank has printed a significant amount of money to boost the economy. The money supply, as a result, has substantially increased. In addition to this, the U.S. government has also spent, continuing to incur budget deficits year-over-year. Going forward, this could mean soaring inflation.
In the first five months of the year, data from the Bureau of Labor Statistics (BLS) says that the U.S. economy had inflation of just 0.2%—that’s two-tenths of one percent. (Source: Bureau of Labor Statistics, last accessed June 18, 2015.)But let me ask you; when is the last time you paid less for something when shopping?Fruit prices. Read More
Inflation drives gold prices higher. If the general level of prices increases, the yellow metal rises. It’s that simple.Look at the chart below. It plots the price of gold (golden line) and the Consumer Price Index (CPI) (black line), the official measure of inflation.You will notice a disparity; until 2013 the CPI and gold were moving. Read More
Strong Economic Data Points to Growth in 2015?As 2014 winds down, many investors are wondering what the economic outlook for 2015 will be. If you look at the U.S. economic data that’s been trickling in, 2015 looks like it could be a very strong year.The U.S. announced strong third-quarter gross domestic product (GDP) growth of 3.9%.. Read More
In the first four months of this year, January to April, prices in the U.S. declined by 0.2%. But this shouldn’t be a reason to jump to the conclusion that deflation will prevail for the U.S. economy. (Source: Bureau of Labor Statistics, last accessed May 31, 2015.)Probability of Deflation in the U.S.: ZeroThe Federal Reserve Bank of. Read More
European Central Bank (ECB) President Mario Draghi said on Wednesday, June 3, 2015 in Frankfurt that the bank would maintain a steady policy and outlook through bond market volatility. He also said that the ECB is ready to provide more economic stimulus to ensure it meets its inflation target. (Source: European Central Bank, June 3,. Read More