In the last few years, housing prices have skyrocketed, and investors are once again jumping on the housing bandwagon as an excellent way to make money. The same sentiment existed in the early 2000s as housing prices were rising rapidly then as well. These periods both created the impression that “housing prices always go up”. But is that actually true? If we look at the “nominal” prices of houses, i.e., the cost in dollars BEFORE adjusting for inflation, it does appear that housing prices go up fairly consistently. In the following chart, we see housing prices since 1890. The blue line is the nominal housing price, and we can see a very gradual increase up through the early 1970s. Prices … [Read more...]
September Inflation Rebounds
The Annual Inflation Rate rebounded in September, according to the Bureau of Labor Statistics report. Inflation Summary: Annual inflation was 5.39% in September, 5.25% in August, 5.37% in July, and 5.39% in June. CPI Index rose from 273.567 in August to 274.310 in September. Monthly Inflation for September was 0.27%, August was 0.21%, and July was 0.48%. Next release November 10th Inflation for the 12 months ending in September was Up from August. Since the BLS rounds to 1 decimal place, they reported June and July as 5.4% and August as 5.3%. So September is once again at June levels. The last time inflation was this high was the 5.60% of July 2008. Before that, we … [Read more...]
Why is a Little Bit of Inflation Considered Good for the Economy?
The short answer is because the U.S. Federal Reserve Board, i.e., the “FED,” says it is. The longer answer is much more complicated. To determine whether 2% is really best for you, we will have to look at a variety of different factors. First of all, it might surprise you to know that it wasn’t always that way. It wasn’t until January 25th, 2012, that U.S. Federal Reserve Chairman Ben Bernanke set a 2% target inflation rate. Before that, the FED didn’t have a specific inflation target but instead regularly set a target range. This range was often between 1.7% and 2%. But even that range is relatively new, and some economists still believe that Zero percent inflation is optimal. Prior … [Read more...]
FED Issues September 2021 Statement
On September 22, 2021, the Federal Reserve reported its current policy position. Currently, the FED is creating liquidity (i.e., printing money) through its Quantitative Easing (QE) program at the rate of $120 billion per month. The market has been fearing that the FED would begin tapering, i.e., cutting back on its liquidity creation. Rumor was that the FED would start reducing their QE by $10-$15 billion per month due to inflation concerns. The last time the FED embarked on a tapering plan back in 2017, they used a two-prong approach of raising the FED Funds rate and reducing the monthly printing by $10 Billion every three months (i.e., roughly $3.3 billion per month). The result of … [Read more...]
August 2021 Inflation Down Slightly
On September 14th, 2021, the Bureau of Labor Statistics said that in August 2021, the Annual Inflation Rate was down. Inflation Summary: Annual Inflation was 5.25% in August, 5.37% in July, and 5.39% in June. CPI Index rose from 273.003 in July to 273.567 in August. Monthly Inflation for July was 0.48% and 0.21% for August. Next release October 13th Inflation for the 12 months ending in August was down 0.12% from July. Since the BLS rounds to 1 decimal place, they reported June and July as 5.4% and August as 5.3%. The last time inflation was this high was the 5.6% of July 2008. Prior to that, we have to go all the way back to the 6.29% of October 1990 to find a higher … [Read more...]
How to Prepare for Inflation
With inflation reaching heights not seen in many years, people are wondering... How to prepare for inflation? And What effects will inflation have on our investments? Between 2020 and 2021, inflation steadily increased from a minuscule 0.12% in May of 2020 to just under 5.4% in June and July of 2021. Although 5+% may not seem like much, it means that prices are 5% higher than they were a year ago. If inflation stays at 5%, you might think it has stabilized, but unfortunately, inflation compounds. So if the inflation rate is still at 5%, next year's prices are now more than 10% higher than last year. So, for instance, after 1 year at 5% inflation, a $100 item now costs $105, but after another … [Read more...]
Hyperinflation Strikes Lebanon… Again
Lebanon's economy is crashing and burning... literally. Fiery protests began in August 2019, in the wake of youth unemployment reaching 37% and the general unemployment at 25%. This was even before the entire world shut down due to COVID. And this was just the beginning of hyperinflation for Lebanon. In 2019 Lebanon's inflation rate averaged a reasonable 2.9% for the entire year, but by July 2020 Lebanese inflation was well into hyperinflationary territory at 112.39%. So prices were moving up so fast they had more than doubled from July 2019 through July 2020. And from there it got worse. From August 2019 through August 2020 prices were up over 120%. And remember that the average for 2019 … [Read more...]
BLS says July Inflation Holds Steady at 5.4%
The U.S. Bureau of Labor Statistics released their Consumer Price Index News Release for the month of July on August 11th, 2021. Inflation Summary: Annual Inflation 5.37% virtually identical to June's 5.39% CPI Index rose from 271.696 in June to 273.003 in July. Monthly Inflation for June was 0.93% and July was 0.48%. Next release September 14th Inflation for the 12 months ending in July was 5.37% identical to August 2008, July 2008 was the previous Peak at 5.60% Last month's 5.39% was the largest increase since August 2008's 5.37%. (Since the BLS rounds to 1 decimal place they reported last month, this month, and August 2008 as 5.4%). If inflation tops the 5.6% of July … [Read more...]
The Relationship Between Inflation and Interest Rates: Explained
"Macroeconomics" deals with the "big picture" of how things fit together in the economy as a whole, while "microeconomics" deals more with how it affects the individual. Here at InflationData, we generally look at the macro side and leave the economics of the individual to our sister sites like Your Family Finances. Today we are going to look at the macroeconomic implications of the link between inflation and Interest rates. ~Tim McMahon, editor The Macroeconomic Link Between Inflation and Interest Rates By George J. Newton Price Inflation is the rate at which the price of goods and services rises in the economy over a period of time. Monetary inflation is the increase in the money … [Read more...]
How Can Inflation Affect Businesses?
Inflation can affect business in strange ways. It can be good for business in small doses, but it can also be disastrous if it devolves into hyperinflation. Hyperinflation is often described as massively increasing prices over a very short period of time, for example, in America during the Civil War. But even if inflation doesn't get that bad, the later stages of ordinary inflation such as we saw in the 1980s can still be devastating to businesses. Here are four ways that businesses are affected by inflation or hyperinflation, and what that might mean for their customers and other services they might invest in. #1 It Can Increase Sales In the short run, as the money supply increases, … [Read more...]
