Inflation, Anyone?

This week's topic is about the current inflation rate in the United States and how the reported inflation rate does not give an accurate picture of what is going on in households.

Inflation is the overall general upward price movement of goods and services in an economy (often caused by a increase in the supply of money), usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could. While the annual rate of inflation has fluctuated greatly over the last half century, ranging from nearly zero inflation to 23% inflation, the Fed actively tries to maintain a specific rate of inflation, which is usually 2-3% but can vary depending on circumstances. The opposite of deflation.

Our current rate of inflation is 3.56%. The Consumer Price Index (CPI) is what the Department of Labor's Bureau of Labor Statistics uses to calculate the inflation rate. The CPI rates everything from fuel, to food, to medical expenses.

I have linked the BLS's CPI report for the month of June 2011. Interestingly, they release a CPI monthly. I find this interesting because I don't think it's an especially useful tool monthly. It's more useful as a yearly indicator of what has occurred in an economy.

However, let's look at the CPI for energy and food. Let's look at food. The BLS reports that although the index for food dropped a tad from May to June, overall, "The index for food at home has risen 4.7 percent over the last 12 months, with all the major groups increasing 3.2 percent or more." Oh, we're feeling that one, aren't we? It sounds so non-threatening in a report like that doesn't it? But let that sink in.

Food has gone up in price by nearly 5% in 12 months. We are paying about 5% MORE this June for the same things we bought last June.

On to energy. The energy index fell in June 4.4% from May, the largest drop since December of 2008. But keep in mind that gasoline prices have fallen partly because the Strategic Oil Reserves are being used to keep our prices artificially low. (I say artificially because it's not a true indicator of a reduction in prices because we have a temporary alternative supply. The Strategic Oil Reserves can't supply forever.)

Here's the money quote:

Despite the recent declines, the gasoline index has increased 35.6 percent over the past 12 months. The index for household energy also decreased in June, falling 1.2 percent after rising 0.5 percent in May. The index for natural gas rose 0.4 percent, but the electricity index declined 1.6 percent and the index for fuel oil fell 2.2 percent. The household energy index has risen 2.8 percent over the last 12 months, with the fuel oil index up 37.3 percent and the electricity index up 1.5 percent but the index for natural gas down 0.8 percent.

So, there it is. In ONE YEAR we are paying 37.3% MORE for gasoline.

This makes me so mad I could spit. And here we are sitting upon some of the richest oil sources in the entire world and President Obama remains unmoved! He hasn't lifted the moratorium on drilling for oil. And we are drying up financially because of it.

Anyways, this post was about inflation. We have a relatively low inflation rate across all goods and services, but where it counts, in food and fuel, we are being killed.

15 more months...15 more months...15 more months...