This past Thursday, the U.S. Bureau of Labor Statistics released its monthly inflation report. Almost instantaneously, you could start finding articles listing that inflation is 6.5%. I wanted to add some perspective to this number.
First, a very basic definition of inflation. Inflation is the general increase in the prices of goods and services. For example, look at eggs.
Second, there are a number of different ways to calculate inflation. While many articles use CPI-U - All Urban Consumers, this may or may not be representative of how inflation is impacting you specifically. The information I am presenting is from this website - US Inflation Calculator and is the CPI-U All Urban Consumers.
The main thing I wanted to bring to your attention is how inflation changed in mid-2022. Most of the increase in prices that led to a 6.5% inflation for the year happened in the first half of the year.
As you can see, there was a massive run up in prices at the start of 2021 through mid-2022 but since mid-2022 the price increase has slowed dramatically.
I am not using this information to try and say what the Fed should be doing with rates or trying to predict what the stock market will do but I believe it is worth bringing to your attention for a few reasons.
First, it is obviously fascinating (a little tongue-in-cheek).
Second, if I just read inflation is 6.5% and took it at face value, I would be somewhat alarmed and discouraged. Knowing that the increase in the price of goods in the last six months has been very moderate is encouraging.
Third, I think it helps explain what you may have actually experienced and seen if you track cash flow. It would be tempting to think- "Oh inflation is at 6.5%, this isn't so bad my lifestyle expenses are roughly flat over the last few months." That isn't because inflation of 6.5% isn't "bad" but because over the last six months, according to the CPI-U, the prices really haven't increased dramatically.
To say it another way, while it is accurate to say inflation over the last year is 6.5%. You can also inflation over the last six months is less than 0.5%.
I hope this provides some perspective. We will have to wait and see what the next six months hold.
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Thank you for reading!
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