The Federal Reserve is the central banking system of the United States. It pegs the CPI core inflation at 2%. Core inflation does not include food or energy. This seems unrealistic to the consumer because they see prices at the supermarket, at the gas station, and home heating costs rising faster than core inflation. We see it generally in all aspects of the things we buy.
The Federal Reserve relies on a broader statistic, the Personal Consumption Expenditures Index which is reported by the Bureau of Economic Analysis (BEA). The PCE excludes food and energy also and was 4.0% in June 2021. This index is much less volatile than the CPI because it uses data from households nationally as well as businesses.
Some industry sectors increase so much that it may deter spending. For example, prices in the real estate market have seen a serious increase in home prices. Sometimes much more than the asking price creating bidding wars.
This is a perfect example of supply and demand in action. We can see it in some communities. As the demand (buyers) for housing increases, the supply (inventory of houses) decreases, thus increasing prices (asking price). It can get so high that some are left out of the real estate market.
Another example is in energy, which increases the price of petroleum which goes into most products, retail, and food industries. Direct cost increases such as: raw materials, utilities to manufacture the goods, transportation cost, etc. when added to the indirect costs to operate a business raise the prices of these goods and services. As the costs increase, the business owners pass these costs to the ultimate consumer in the form of higher prices, contributing to inflation.
Would you like to eat steak? The cost to raise grain fed beef has increased greatly. Beef is a protein. There are other substitutes for proteins. Protein substitutes for beef could be chicken, fish, pork, beans, eggs, or cheese.</p
Looking for ways to hedge against inflation? Give me a call at (973)857-7650! We can review your expenses, both business and personal to identify ways to ensure that inflation doesn’t take too much of a bite out of YOUR home and/or business budgets.
These are the expressed opinions of Frugal Brenda LLC and are by no means the only options for the reader. It is suggested that they seek professional help for their individual issues.