The cost of U.S. consumer goods and services is going up. The government reported Wednesday that prices rose in February at the fastest pace in six months thanks to higher prices at the pump.
The CPI, or the consumer price index, tracks what U.S. consumers are paying for goods. Wednesday’s reading shows that inflation for the past 12 months has jumped to 1.7% from 1.4%.
Gas Prices Jump
Gasoline prices are rising significantly as more people return to a greater kind of normalcy now that the vaccines are being distributed. As a result, gasoline prices are ticking higher  rising 6.4% in February. Fuel oil, meanwhile, jumped 9.9% in the month.
Food Prices Jump
Food prices also moved higher in February, increasing by 0.2%. Grocery prices are up 3.5% in the last year, and the cost of buying food at or from restaurants is also on the rise, up 3.7% in February.
Some economist prefer to look at what’s known as CORE CPI, a measurement of inflation that strips out food and energy costs. The core rate is far more tame and indicates just a 1.3% increase in the last year — which is less than the 1.4% it registered in the previous month.
Investors Optimistic Fed Will Continue Its Easy Money Printing Policies
Thanks to the tame core rate, investors are optimistic that Jerome Powell and company will keep its liquidity measures turned on. It’s unlikely that the Fed will feel pressured to act to curb pending inflation since the core rate suggests inflation is muted.
Why The Fed is Wrong Not To See the Whole Picture
The Fed is wrong not to pay greater attention to the overall rise in CPI thanks to food and energy costs moving higher.
Food and energy are essentials that people consume, that they need.…and are therefore, an excellent indication of what everyday Americans are actually experiencing in their lives. Inflation for food and energy is still REAL inflation. We shouldn’t be stripping them out and looking at the core number just to make us feel better. If we want a real sense of what’s truly happening on the inflationary front, the overall CPI data is the better number to consider.
Bottomline
Though inflation was at near zero throughout the pandemic and there were times that some economists even worried about deflation, the reality is: inflation is back.
And when the stimulus money starts getting spent, that $1.9 trillion may cause inflation to take off in ways that we haven’t seen since the 1970s.
Look to the bond market the real picture. Yields on the 10-year Treasury bond have been creeping higher in recent months, with yields touching 1.6%. Â Investors are awaiting the auction of $38 billion in 10-year Treasury notes on Wednesday. The massive borrowing from the Federal government is causing some investors to no longer have as much interest in Treasury debt — and this could result in higher rates.
Higher interest rates on U.S. debt in turn results in higher rates on car loans, mortgage loans and any other kind of loan consumers and businesses may need.
