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Inflation Slows – But Did You Notice?

A key measure of inflation (the consumer price index) increased 0.2 percent in April on…

  • June 2, 2018

A key measure of inflation (the consumer price index) increased 0.2 percent in April on a seasonally adjusted basis after falling 0.1 percent in March, the government reports. This is less than expected giving the nation’s strong economic health. But did you feel a moderation in the cost of living increases?

Probably not, since the things that did jump in price – gasoline, groceries and rent – have an immediate and noticeable impact on people’s lives.

Remove food and energy from the equation and we get what’s called core CPI. By this measure inflation only rose just 0.1% in April.

CPI has grown around 2.5% in the past 12 month, while core CPI has grown by around 2.1%.

All of these numbers matter going forward because the Federal Reserve carefully watches them, and pushes interest rates higher or lower accordingly.

The Fed wants some inflation in the economy — a target of around 2% annually. When inflation accelerates beyond that rate, the Fed ratchets up interest rates to regulate the economy, and prevent the kind of wage and price inflation spiral last seen in the 1970s.

So, while we’re not happy with the rising prices at the pump, we can take some solace in knowing that a big spike in consumer finance rates is probably not coming our way really soon.

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