Wednesday, June 15, 2011

Uh Oh

The CPI rose at an annual rate of 3.6% last month. Inflation is considered anything above 4%.
Ironically, if you factor back in food and energy costs, the CPI rise was only 2.4% per annum, which is less troubling. This was due in large part to a drop in energy prices, however, which will no doubt begin to bounce back up now that summer is upon us.
One large reason why core CPI is calculated without energy (and food) prices is to smooth out volatility and seasonal fluctuations. It tends to be more accurate a gauge of how consumers are being affected long term (with energy and food is a better snapshot of how consumers are feeling the pain.)