Why is The FED's Targeted Inflation Rate Important in the US? Since 2012, the Fed has targeted an inflation rate of 2%. They have deemed this a healthy rate of inflation, necessary for economic growth. According to the Board of Governors of the Federal Reserve System, since 1977, the Federal Reserve has operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates" this is called a "dual mandate" in that it is supposed to balance a healthy economy with stable prices not just target low inflation. When the FOMC (Federal Open Market Committee) meets, their job is to fulfill this mandate. The Fed has … [Read more...]
How the Currency Exchange Rate Can Affect Business
In finance, an exchange rate is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country's currency in relation to another currency.~Wikipedia Currency depreciation happens when a nation’s currency exchange rate (e.g. the Chinese Yuan) decreases in value in comparison to another country’s currency (e.g. the U.S. Dollar). So, if the dollar increases in value compared to the Yuan, it means U.S. based businesses or individuals could receive more for their money from an overseas supplier than they did previously, even if the price in the foreign currency is unchanged. On the other hand, Chinese companies will pay more for … [Read more...]
How Does Inflation Affect the Cost of Insurance?
What is Inflation and How does it Impact Insurance? Well, to understand the effects that inflation has on insurance, it is crucial to understand what inflation is. Generally, there are two types of inflation "Price inflation" and "Monetary inflation" (i.e. an increase in the money supply). Price inflation is primarily caused by monetary inflation. In this article, we will use the common meaning of inflation and refer to Inflation as a general rise in prices. To understand inflation's impact on insurance, we must first understand that insurance is a monetary instrument i.e. a contract generally between an individual and a company that involves a series of small payments from the … [Read more...]
Why Inflation Matters to Small Businesses
By: J. Blake Ledbetter, Conoscienti & Ledbetter Price inflation is the term that economists use to characterize an increase in the price of goods and services over time, which reduces the purchasing power of the currency. The bite of inflation often can be slow and painful. When inflation rates rise above 5% however they can be devastating to an economy and especially to small businesses. The rate of inflation is the increase in prices during a specified period. If inflation is at three percent annually, something that costs $100 this year will cost $103 next year. What it means to consumers and businesses is that money doesn't buy as much. Inflation can be especially painful … [Read more...]
Debt and Inflationary Pressures: A Lesson in Economic Interactivity
Does debt cause inflation? If so what kind of debt? Personal debt? Government debt? Corporate debt? And what exactly is inflation? In this article, we will look at all these issues. Price Inflation occurs when the cost of a representative basket of goods and services is rising. The key factor is the general trend that takes place in an economy, it is possible that individual items such as foreign automobiles, the price of coffee, or corn could rise while other items that require a larger portion of your disposable income are falling (or vice versa). So the Bureau of Labor Statistics uses a "weighted basket of goods" i.e. they calculate what percentage of an average person's salary goes … [Read more...]
3 Ways Natural Disasters Affect Fuel Prices Everywhere
When a natural disaster hits, it's expected that the surrounding region will have difficulties. What's less expected, though, is that the price of fuel goes up everywhere. Even though it happens every time there is a disaster, it's still hard to understand the logic behind the price hikes. Below are three of the reasons why the price of fuel tends to go up everywhere when a natural disaster strikes. Shipping Woes When a disaster strikes, roads are blocked, electric lines get knocked down, emergency services are pushed to the limit, bottled water is in short supply. Even the internet might be gone for days. When this happens, it becomes much harder for fuel companies to ship their products … [Read more...]
How the Inflation Cycle Influences the Job Market
Inflation is generally a gradual process, so most people don't put much thought into inflation, since it happens so slowly. But certain things can cause inflation to occur at a faster rate than it normally would and at times countries even experience hyperinflation like Zimbabwe did several years ago and Venezuela is now. But even when it is gradual, creeping inflation can have a major effect on just about everyone. Generally, when we think of inflation we think of rising food prices. But although you might never have really thought about it, inflation can have a huge impact on everything from food to cars to the job market i.e. both products and services. Here are a few ways that inflation … [Read more...]
How Much Has Inflation Affected Mortgage Rates in the Last 5 Years?
In some ways, mortgage rates are a reflection of the overall health of the American economy. As we can see in the chart below from "FreddieMac", often both mortgage rates and inflation rates peak during recessions and tend to fall or are stable during better times. How has inflation impacted mortgage rates recently? The FED Rate According to the St. Louis FED website: "The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with … [Read more...]
Betting on Deflation May Be a Huge Mistake. Here’s Why…
Although this site is called Inflation Data for the last several years we have been talking a lot about the big "D"... deflation. Strictly speaking, the only true deflation (inflation rates below zero) occurred in 2009 and then very briefly in 2015. See Annual Inflation Rate Chart. But as the chart shows the overall trend since the peak in 1990 has been down with the occasional spike upward. Since the peak in September 2011 however, the trend has been sharply down (falling inflation rates = disinflation) until it bottomed in April 2015. Since then inflation has turned up and has crossed above its moving average. So does this mean that we are in for a bout of inflation? Possibly. … [Read more...]
58 Facts About The U.S. Economy From 2015 That Are Almost Too Crazy To Believe
There are a variety of ways to look at things and putting the pieces together is almost like looking through a kaleidoscope as we try to piece the facts together in order to get an accurate picture of the economy. Some of the pieces appear to indicate that the economy is getting better and some appear to indicate that the economy is getting worse. And just like the kaleidoscope the pieces change on a constant basis. At the moment the economy is clearly better than it was at the bottom of the crash in March of 2009 when the NYSE was near 4800. So the current levels of 10,000 looks good but... we have to remember that back in 2007 the NYSE was also at 10,000. So if we adjust 2007 … [Read more...]