Wednesday, July 17, 2013

The Meaning of Inflation

The Labor Department released its inflation figures for June yesterday, as well as its numbers for the previous 12 months as a whole, and it appears as if inflation is still under control. The Consumer Price Index rose by 0.5 percent in June, with two thirds of that figure attributed to higher gas prices. (Other energy prices were stable.) For the past 12 months, prices rose at 1.8 percent.

Much of that rise is due to energy prices. Over the past 12 months, energy costs are up 3.2 percent, while the core inflation index - for everything besides food and energy - rose 1.6 percent. That's the lowest core inflation reading for any 12-month period since June 2011.

These figures are significant beyond what we pay at the pump or at the grocery store. The Fed is watching the inflation rate closely as it considers ending its bond-buying program; the longer it stays below the avowed target rate of 2.0 percent, the longer that program is likely to continue.

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