Despite the various statements made by economists and Federal Reserve officials who say there is no inflation, the Department of Labor confirmed that United States consumer prices increased last month by the largest amount in more than a year. The biggest inflation jump occurred because of rising food and transportation costs.
According to the Labor Department’s statistics, the consumer price index jumped 0.4 percent in May, the biggest one-month increase since Feb. 2013 when it inched 0.6 percent higher. When analyzing a 12-month period, consumer prices are up 2.1 percent.
Food costs were up 0.5 percent, the biggest gain since Aug. 2011, while energy costs were also higher at 0.9 percent. Gasoline prices, which can affect everything from public transportation, moving and business costs, rose 0.7 percent. Airline tickets saw its biggest one-month gain since the summer of 1999 as it increased 5.8 percent.
New cars, clothing and prescription drugs also saw price increases in the month of May.
When omitting food and energy prices from the equation then the core inflation rate was up only 0.3 percent, which would also be the largest increase since Aug. 2011. In the same 12-month period, core prices are in positive territory as well at two percent.
Price inflation hasn’t been extinct prior to last month’s numbers. There have been several reports that have highlighted how inflation has affected everyday items that consumers purchase: eggs, gas, stamps, meat and more. In fact, food price inflation has been higher than overall price inflation for nearly a decade now.
Although these might seem obscene to the average consumer who is living on a tight budget in today’s economy, these inflation rates are maintaining the two percent target established by the U.S. central bank. These inflation numbers are considered low, which is assisting the Fed at keeping interest rates at record lows.
The Federal Open Market Committee (FOMC) met Tuesday and Wednesday and most economists agree that the Fed will keep a short-term interest rate at near zero and maintain the current ZIRP (zero interest rate policy) monetary initiative.
Larry Summers, former Treasury Secretary and key economic adviser to President Obama, told the Wall Street Journal that he expects the central bank to keep interest rates at record lows for years to come. He posited that a lack of considerable economic growth and heightened savings rates would prompt the Fed to keep interest rates at historic lows for several more years.
“I suspect unless circumstances change, fed funds rates may well average less than 3 percent over the next decade,v said Summers, who was a candidate to succeed then-Fed Chair Ben Bernanke last year.
This could incite a financial catastrophe because the record-low rates will enhance the danger of several financial bubbles as investors purchase assets akin to real estate or stocks in order to generate higher rates of return.
Several contrarian investors have warned of different kinds of bubbles forming, such as Nouriel Roubini, David Stockman, Peter Schiff, Marc Faber and Doug Casey. It is because of the Fed’s monetary policy that is blowing up these bubbles to high-risk levels.
