People are wound up about inflation, with all the gas price talk and other issues. So the montly reports from the BLS are watched closely. They are not particularly accurate or based on the best sources, but they probably give a somewhat accurate trend. Inflation is bad for a variety of reasons, not least of which is it creates uncertainty about the future price and value of anything. It deters investment and savings. During high inflation, it tends to be very hard for people’s income to keep up with the higher prices. It has a very negative psychological impact. So the Federal Reserve and the Treasury Department, to the extent they can control inflation, are wise to do so.
And we are having some inflationary issues. In August, prices rose .4% month-over-month and 3.5% year-over-year. That is too high, although in line with expectations. As you might expect, energy and gas prices in particular, were the major contributor to inflation. I find it laughable that the BLS has a “core” inflation number that ignores gas prices and other items that everyone has to buy. But that core inflation number, supposedly less volatile, is rising at a slower pace. Some big costs have shown mild growth–like housing and food prices. I don’t believe this, because BLS uses a weird methodology, but medical care prices showed a slight decline. Service prices are rising faster than the cost of goods.
One oddity here is that apparently this CPI release is believed to increase the likelihood that the Federal Reserve will raise its interest rate. Interest rates are the price of money, and those increases flow through to many forms of debt, increasing consumers’ costs. Inflation isn’t out-of-control, the money supply isn’t growing very fast, which should help control inflation, but it is growing fast enough to inflict pain on most of the population. (BLS Release)
