When we think of inflation we generally think of "Price Inflation" i.e. how much the price of a good or service has increased in dollars. However, price inflation is not "monolithic" that is, they don't all increase at exactly the same rate. Some prices will increase faster or more than others. So it is often useful to compare the price of one commodity to another to see the relative increases of each. Over the years we have compared a variety of different commodities including Gasoline vs. Oil and Oil vs. Bitcoin. We've even done a 3-way comparison of Gold vs. Dollar vs. Bitcoin. But since gold is historical money it is useful to use it as the standard yardstick. So we have updated … [Read more...]
How Does a Country “Export” its Inflation?
This question is interesting because most countries can’t just export their inflation because their currency is exclusive to their country. However, the U.S. is in the unique position of being the “reserve currency” of the world. In addition, several countries like Panama, Ecuador, and Zimbabwe, actually use the U.S. dollar as their currency and don’t even have their own currency at all. So the U.S. currency has a greater than normal influence on other country's economies. Exporting inflation is a Government's dream scenario. If they could print all the money they wanted and not suffer the consequences of their actions, it would be a dream come true for politicians. Printing money boosts … [Read more...]
May’s Annual Inflation Soars to ~5%
Inflation Summary: Annual Inflation up sharply to ~5% (actually 4.99%) CPI Index rose from 267.054 in April to 269.195 in May. Monthly Inflation for April was 0.82% and 0.80% in May. We have to go back to the Oil Peak of 2008 to see higher inflation. Next release July 13th Annual inflation for the 12 months ending in May was 4.99% Since February, we have been predicting Annual Inflation would shoot up in March and April due to negative numbers falling out of the annual calculation. Although May 2020 was not negative it was virtually zero so replacing it with a massive 0.80% monthly inflation caused the Annual inflation rate to soar once more. Since the BLS rounds … [Read more...]
5 Ways Inflation Affects the Accounting Industry
Market fluctuations are an everyday element of the accountant’s life. They come and go, subject to the economics, markets, and policies of countries and governments. As an economy enters a period of inflation and sees the cost of everyday products rise, the impact can be felt not only by the individual consumer but also on the business balance sheet. That’s when the accounting industry comes into its own, offering experience and insight into a company’s reporting. Here are 5 ways inflation affects the accounting industry, and how that impacts business. 1. Preparation for Change Becomes a Priority Throughout history, periods of inflation and conversely deflation, have made their presence … [Read more...]
The 3 Stages of Inflation
Inflation tends to arrive in 3 stages: Stage 1 The first stage is the price manufacturers pay for their raw materials. This can be tracked in a variety of ways including the Global Price of Agrigated Raw Materials published by the St. Louis Federal Reserve. Interestingly, raw materials prices peaked in February 2011 at 187.2 and then fell steadily over the next 4 years. Prices stabilized for a few years before plummeting due to COVID. Since then raw materials prices have spiked sharply. But are still nowhere near 2011 levels. One of the reasons for the sharp spike in 2011 was serious flooding causing massive crop loss driving the price of four basic crops (wheat, rice, corn, and soybeans) … [Read more...]
April Inflation More than Double FED Target
Inflation Summary: Annual Inflation up sharply from 2.62% in March to 4.16% in April. CPI Index rose massively from 264.877 in March to 267.054 in April. Monthly Inflation for March was 0.71% and for April was 0.82%. We have to go back to the Oil Peak of 2008 to see higher inflation. Next release June 10th Annual inflation for the 12 months ending in April was 4.16% We have been predicting Annual Inflation would shoot up in March and April due to negative numbers falling out of the annual calculation. Since the BLS rounds their numbers to 1 decimal place they reported March as 2.6% and April as 4.2% taking inflation well above the FED's 2% target rate. Due to … [Read more...]
Managing Business During Periods of Inflation
When a currency's purchasing power declines, the average cost of goods and services rise, and the economy in question enters a period of inflation. This affects not only individual consumers and families but businesses as well. COVID-19 has rocked the global economy like nothing we've seen or experienced for a century. And the government's response has been to create massive quantities of liquidity. This means that a period of inflation could very well be on the horizon. If a business is to effectively circumvent this difficult economic period, it should be preparing for the challenges that lay ahead. Here are four things a business can do to prepare for the next inflationary … [Read more...]
March Inflation Skyrockets
Inflation Summary: Annual Inflation up from 1.68% in February to 2.62% in March. CPI Index rose slightly from 263.014 in February to 264.877 in March. Monthly Inflation for February was 0.55% and March was 0.71%. Next release May 12th Annual inflation for the 12 months ending in March was 2.62% We have been predicting Annual Inflation would shoot up in March due to higher gas prices and negative numbers falling out of the annual calculation. Further increases to come in April and May. Since the BLS rounds their numbers to 1 decimal place they reported February as 1.7% and March as 2.6% for a monthly increase of 9/10ths of 1% taking inflation well above the FED's 2% … [Read more...]
How Inflation Can Effect Rising Prices
In the field of economics, many experts agree that the long-term effects of inflation are dependent on the money supply in a country. Alternatively, the price levels are directly proportional to the money supply in the long run. Therefore, the money supply or the currency in circulation can directly affect the prices of goods and services. The confusion arises because both monetary inflation (an increase in the money supply) and price inflation (an increase in consumer prices) are both commonly referred to as "inflation". Even though many people consider money printing to be the cause of more money in circulation, physical paper in circulation is actually only a small percentage of the … [Read more...]
February Inflation Increases 20% over January
Inflation Summary: Annual Inflation up from 1.40% in January to 1.68% in February. CPI Index rose from 261.582 in January to 263.014 in February. Monthly Inflation for January was 0.43% and February was 0.55%. Next release April 13th Annual inflation for the 12 months ending in February was 1.68%, a 20% increase over January's 1.40% The CPI index itself was up from 261.582 in January to 263.014 in February. Resulting in a monthly inflation rate of 0.55% which replaced February 2020's 0.27%. Annual inflation for the 12 months ending in February was 1.68%, since the BLS rounds their numbers they report it as 1.7%. Setting the Stage for Inflation Due to the Corona … [Read more...]
