Current level of inflation

Current level of inflation

The inflation rate plays an important role in determining the health of an economy. Countries with extremely high inflation rates are said to have hyperinflation and when this occurs the economy is often near collapse. But even moderate inflation can rapidly erode purchasing power and creates uncertainty as businesses have more difficulty estimating future costs. Usually, high inflation rates also correspond to high interest rates as lenders need to compensate for the decline in purchasing power of future interest and principal repayments. This results in higher costs of doing business and place an overall drag on the economy.

We calculate the Current Inflation rate (see table below) to two decimal places while the Bureau of Labor Statistics only calculates inflation to one decimal place. Therefore, while being based on the same government Consumer Price index (CPI-U) our data provides a "finer" view.

January and February 2012 is a perfect example, according to the government statistics both months had inflation rates of 2.9%. However, our data shows inflation in January as 2.93% and in February as 2.87%. Therefore instead of the inflation rate being "flat" it is actually falling slightly. Of course this could just be a statistical anomaly but..

Using this enhanced view we might be alerted to watch for the possibility of a bigger decline... which in fact did happen as inflation rates for the following months fell to 2.65%, then 2.30% and 1.7%, 1.66%, and finally 1.41% before beginning to rise again.

In another example we see August 2003 and September with the Government saying inflation rates were 2.2% and 2.3% respectively. This would lead us to believe that inflation rose .1% during that period. In actuality however, it rose from 2.16% to 2.32% or a .16% increase, substantially more than .1%! Once again this finer view gives us a better picture that inflation might be rising more than it appeared to be.

Current Inflation Table

The Inflation table below is updated monthly and provides the current US Inflation Rate which is for the preceding 12 months. The Inflation rate is calculated using the Current Consumer Price Index (CPI-U) published monthly by the Bureau of Labor Statistics. CPI Index Release Dates

You may also be interest in a table of Monthly Inflation Rate data, which shows how much prices have increased over the previous month. Also check our current articles.

Since high inflation is detrimental to the overall economy but beneficial to the government (since it allows them to pay back their debt with "cheaper dollars") the Federal Reserve has a constant balancing act to try to reconcile the government's desires for higher inflation with the need for a healthy economy.

In an effort to convince people that inflation is really good, the government has a constant media circus going promoting the benefits of inflation and decrying the evils of deflation- but what's so bad about falling prices?)

Their major argument revolves around the "stimulating" effects of inflation. Basically it makes people feel richer until they eventually realize that each of their dollars now buys less. But in the meantime they tend to spend the "excess". This results in people buying things they wouldn't have, had they realized that their money was actually worth less than they thought. Eventually this results in a monetary "hangover" as the effects of their buying binge become apparent.
Inflation is largely a result of increases in the money supply months or even years previously. Because of this serious lag in the time between the money creation and the time it shows up in the economy the FED must estimate the impact their money creation efforts will have years in advance. The Federal Reserve tries to target a 2% inflation rate but often over or underestimates the effect their actions will have.

The Federal Reserve monitors the inflation rate for its targeting purposes using the "Core Inflation Rate" which excludes food and energy leading some people to mistakenly believe that the U.S. government doesn't track those items in the inflation rate. Actually the Bureau of labor statistics does track them but the FED simply excludes them for targeting purposes because they are volatile and subject to external forces unrelated to the money supply.

Source: www.inflationdata.com
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