Wholesale Prices Rising at Fastest Pace Since 1981
New federal government data showed that the cost of materials used by businesses increased 1.2 percent in July and have risen 9.8 percent during the past 12 months. It was the largest yearly increase since 1981, as businesses absorbed sharp increases in energy and other commodity costs.
Today’s report follows recent news that consumer prices are also rising faster than expected — and faster than the Federal Reserve’s generally accepted target rate of around 2 percent.
Inflation can cause serious damage to your personal finances. As prices increase if you don’t get a raise (or your investments don’t raise) to match the increased costs you must pay your financial situation deteriorates. One benefit, to those with 30 year fixed rate mortgages, is that you get to pay back your loan with inflated dollars. This can be a huge advantage for some, and a huge loss for whoever holds the mortgage.
Related: inflation risk for investments - Inflation is a Real Threat - Food Price Inflation is Quite High - posts on inflation
U.S. Consumer Prices Jumped in June by the Most in 26 Years
…
Prices increased 5 percent in the 12 months to June, the most since May 1991. They were forecast to climb 4.5 percent from a year earlier, according to the survey median. The core rate increased 2.4 percent from June 2007, also more than forecast.
Energy expenses jumped 6.6 percent, the biggest gain since the aftermath of Hurricane Katrina in September 2005. Gasoline prices soared 10.1 and fuel oil jumped 10.4 percent.
…
Rents which, make up almost 40 percent of the core CPI, also accelerated. A category designed to track rental prices rose 0.3 percent after a 0.1 percent gain in May. Today’s figures also showed wages decreased 0.9 percent in June after adjusting for inflation, the biggest drop since August 1984, and were down 2.4 percent over the last 12 months. The drop in buying power is one reason economists forecast consumer spending will slow.
The continued increase of inflation is a serious problem. Eventually the federal reserve needs to take serious action (raising the discount rate). And the politicians need to stop raising taxes on the future to spend more and more every year. Their continued financial irresponsibility is a large part of the reason for the declining value of the dollar - along with the voters that keep electing those proposing large increases in spending while pushing off paying for that spending to future tax increases.
Related: inflation investment risk - Food Price Inflation is Quite High - Bernanke warns of inflation - Politicians Again Raising Taxes On Your Children - USA Federal Debt Now $516,348 Per Household
Read more
Energy and food prices have obviously been increasing dramatically. The economist has a nice chart showing where people spend most on food and fuel. In the USA, Canada, Western Europe and Australia people spend less than 25%. In Brazil, India, China, Mexico, South Africa, Turkey… they spend 25-40%. In Argentina, Saudi Arabia, Russia, Pakistan… they spend 40-50%. And in Mongolia, Nigeria, Iran, Kenya, Madagascar… they spend over 50%.
The data is from the IMF. As with any economic data there are issues to consider about comparing across countries. Still this is a stark illustration that the impacts those in the wealthy countries feel from rising energy and food prices are felt to a greater degree in poor countries (that already have economic difficulties).
Related: Food Price Inflation is Quite High - Helping Capitalism Make the World Better
At work people have been talking about the increasing prices of food and the price increases sure are noticeable to me. With the exception of gas, I have not heard discussion of inflation outside of a classroom, maybe ever, I can’t recall hearing it anyway. Egg prices are up 35 percent, with milk and bread not far behind
…
The crunch for American shoppers pales compared with the challenges faced by those in the developing world. Americans spend just 9.9 percent of household income on food, according to the Agriculture Department. Compare that with poor countries such as Ethiopia and Bangladesh, where it’s not uncommon for families to spend 70 percent.
Consumer Price Index Summary - March 2008:
Related: what is inflation risk? - Manufacturing Productivity - What Do Unemployment Stats Mean?