Inflation Increased in June by Most Since 2008 - How Do You Feel About Rising Prices?

What’s the story?

• The Bureau of Labor Statistics reported Tuesday that consumer prices rose by 0.9% in June after a 0.6% seasonally-adjusted increase in May, meaning that June saw the largest one-month increase in inflation since it rose by 1% in June 2008. 
• Over the last 12 months, the all items index rose by 5.4% before seasonal adjustment, which is the largest 12-month increase since a 5.4% increase in the period ending in August 2008.

What goods did prices increase the most for?

• Here’s a rundown of the common items which have seen the largest increase in inflation year-over-year (notable monthly changes in parentheses):
• Car rental prices increased 87.7%.
• Used car and truck prices increased 45.2% (including a 10.5% rise in June compared to May).
• Gas prices increased 45.1% (including a 2.5% rise in June compared to May).
• Laundry machine prices increased 29.4%.
• Airfare prices increased 24.6%.
• Moving prices increased 17.3%.
• Hotel prices increased 16.9%.
• Bacon prices increased 8.4%.
• Fruit prices increased 7.3%.
• Milk prices increased 5.6%.
• New car prices increased 5.3%.

What is inflation and how is it measured?

• Inflation is a measure of the decline of purchasing power for a given currency over time, which in the U.S. means that a dollar effectively buys less than it did in prior periods because prices rise.
• The most common way inflation is measured through the Consumer Price Index for Urban Consumers (CPI-U), which shows changes in prices paid for a “representative basket of goods and services” by an urban consumer group representing about 93% of the U.S. population.
• CPI-U includes food, energy, commodities like cars and clothes, plus services such as rent and healthcare; and the relative importance of each to the overall basket shifts according to its proportion of all spending in a given month. This overall number is known as “headline” CPI, although economists also track a metric called “core” CPI which excludes food and energy because those categories tend to have more volatility.
• The Federal Reserve aims to keep inflation at about 2% as part of its dual mandate of promoting stable prices and full employment, as a modest amount of inflation is viewed as an optimum policy in terms of encouraging consumer spending without penalizing savings and investment. When inflation starts to get out of control, the Fed raises interest rates to encourage more savings and less consumer spending.

— Eric Revell

(Photo Credit: iStock.com / sefa ozel)