The Rise of Inflation Rate in The Us

Introduction

Measuring inflation is a difficult problem for government statisticians. To do this, many items representing the economy are gathered in what is called "market basket". The cost of this basket will be compared over time. As a result, the price index which is the cost of today's market basket will be the ratio to the cost of the same basket of the current fiscal year. In North America there are two major price indices measuring inflation.

Consumer price index (CPI) - a measure of the price change of consumer goods and services such as gasoline, food, clothing, automobiles. CPI measures price fluctuations from the buyer's point of view. US CPI data can be seen at the Bureau of Labor Statistics.

Producer price index (PPI) - A type of indicator that measures the average change when domestic producers of goods and services sell prices. PPI measures price fluctuations from the seller's point of view. The PPI data of the United States can be seen at the Bureau of Labor Statistics.

What are some factors that contribute to the rise in inflation?

Automobile-related, clothing, and housing are most important in core inflation calculation. Regarding automobiles, as mentioned above, gasoline has fallen, and the impact of the earthquake in Japan has almost reached the end of automobile prices, so inventory has recovered to normal level, and there is no impact. Regarding clothing, cotton as raw material has plummeted in the past several months, there is no reason for fiber price to rise. The remainder is housing. As you know, the housing recession in the United States has a lot of households and it has resulted from driving out from the house. Therefore, it is caused by the tightening of rental housing where those people live. According to the survey, the demand for rental housing is expected to range from 360, 000 to 470, 000 in 2010 from 2010 to 2020, and as a result see the graph showing the deviation of the change in rent and house price As long as the rent rise of the rental property shows high growth from around 2005, it is positive deviation even in 2011. On the other hand, rental houses are only being supplied with 125 thousand cases in 2010, and the number of rental housing starts has fallen dramatically in fiscal 2011, so the pace of supply is expected to remain sluggish in the future. As a result, it can be seen that the irony result that the rent rise of the rental housing leads to inflation is occurring.

How did the inflation affect the market?

Many analysts say that the valuations that are valued in light of corporate earnings are rich in the past standards and that the employment data shows that the economic fundamentals supporting the stock are strong, so the stock market is separated I believe. Inflation has not risen with respect to the level yet, as long as the pace is discreet, the stock has room to rise. Movements by healthy economic growth, the US deficit spending and the world central bank to raise interest rates from ultra-low levels have raised US bond yields for the first time in four years. Rising yields may counteract the appeal of investors with high dividend payouts to investors and raise the borrowing costs of US companies and households, which may put pressure on economic growth. The first response to Wednesday CPI data was that the S & P 500 e-mini futures ESc 1 fell to the lowest level of 2, 627 while the US 10-year bond US 10 YT = RR benchmark yield rose to 2. 891%. Before weakening, the dollar surpassed. DXY against the basket of major currencies. However, the stock recovered, turned to positive after the opening bell and the 10 - year bond yield was relaxed. The strengthening currency usually comes in response to the economic improvement, but even after the recent rise, the US dollar is close to its lowest lows for the first time in four years. Some of these weaknesses are based on the reduction of economic measures by central banks other than FRB. As currently worried, if the US economy does not show a significant rise in inflation, it could tighten the Fed's hands on raising interest rates and lowering the dollar.

Financial measures in the US government's inflationary rise

Implementation of additional monetary easing (so-called QE 3)

As mentioned earlier, concern about "there is a possibility that economic growth may not be strong enough to realize sustainable improvement of labor market without one-stage policy easing", the Fed said the FOMC We decided additional monetary easing in. Specifically, we first decided to purchase mortgage-backed securities (MBS) at an additional $ 40 billion per month. Also, in the statement, "If the outlook of the labor market does not improve markedly, the committee will continue purchasing MBS, implement additional asset purchase and make necessary We will use other policy measures accordingly. "As for the purchase of MBS this time, so-called" open-end type "asset purchasing measures were adopted that did not specify the deadline or scale. Besides that, as a period during which an unusually low level FF interest rate is reasonable, "For now it is anticipated that it will be at least by the middle of 15 years", and the time axis extends from "late at least 14 years" until August It was done. Furthermore, in order to support continuous development toward maximizing employment and stabilizing prices, the committee said, "In a considerable period after the economic recovery has strengthened, we anticipate that a very mild monetary policy stance will continue to be appropriate It is suggested that the policy interest rate may be maintained at an unusually low level for a long time. Although the policy adopted in the September decision is similar to the past measure, it does not clearly indicate the timing with regard to the policy interest rate as to whether it is an "open-end type" asset purchase policy, "the economic recovery It is said that it started a new effort as an FRB in that the time axis has been extended for a considerable period after strengthening.

Purchase policies of MBS newly decided at FOMC in September

The purchase of MBS decided in September 12, 2000 was carried out as part of credit mitigation measures from January 2009 to October 1998, except that the deadline and the final scale are not clearly stated Basically the same thing, we will purchase a fixed amount of agency MBS every month. Here, I would like to outline the MBS purchase policy this time, as compared with 2009. First, the agency MBS is an MBS guaranteed by GSE and government-based housing agencies, but its outstanding balance with the agency bonds (agency bonds) is 7. 5 trillion. It is larger than the dollar. Looking at the holding structure of government agency bonds and agency MBS, in addition to financial institutions such as commercial banks, they are held in a wide range of institutions such as pension / mutual funds and overseas investors as bonds with high creditworthiness equivalent to government bonds. After the financial crisis, when FB purchases MBS totaling 1. 25 trillion dollars from January 2009 to March 2010 in the face of decreasing balance held by overseas investors etc. , in the April-June quarter of 2010, The Federal Reserve's holdings have increased to around $ 1. 3 trillion. The balance held then declined, but it has stopped falling since the MBS principal reinvestment from October 2011. Following the MBS purchase measure this time, the holding balance at the beginning of November is 930 billion dollars.

Conclusion

I learned a few important points of inflation. Inflation is a sustained rise in the general price level of goods and services. As inflation rises, the decline in value, that is, purchasing power declines. Inflation fluctuations include disinfection, deflation, hyperinflation and stagflation. The theory about the cause of inflation is controversial. Some common theories include demand pull inflation, cost push inflation, and currency inflation. If unexpected inflation happens, creditors lose, fixed income people lose, menu costs rise, uncertainty reduces expenditure, exporters are not competitive. The lack of inflation (or deflation) is not necessarily a good thing, there is a possibility to make the deflationary spiral unstable. Inflation is measured in the price index. The two main groups of inflation-measuring price indexes are the consumer price index and the producer price index. GDP and price deflator are also used. Interest rates are determined by the Federal Reserve System. Because inflation targeting is used as a policy, inflation plays a major role in the Fed's decision on interest rates. In the long term, stocks and precious metals are good defense against inflation. Inflation is a serious problem for bond investors. It is important to understand the difference between nominal interest rates and real interest rates. Inflation index securities provide protection against inflation, but offer low returns.

Recommedation

The inflation rate in the US is approaching 3%, with the harsh employment market and strong economic growth, the Federal Reserve will continue to raise interest rates despite trade concerns. US consumer price increase in June rose by 0. 1%, raising the inflation rate to 2. 9%, the highest figure since December 2011. With the exception of volatile food and energy components, the core CPI is 0. 2% annual inflation rate is 2. 3%, the highest level since August 2016. The price pressure of the pipeline is still rising, and the inflation rate of imports and producer prices are also hitting new highs. Thus, the inflation rate of consumer prices is likely to continue to rise in the coming months.