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U.S. Inflation: Understanding Why Prices Are On The Rise

Inflation is the gradual loss of purchasing power, reflected measures how much more expensive prices for goods and services have become over a certain period, usually a year.
U.S. Inflation: Understanding Why Prices Are On The Rise (PHOTO: Dreamstime))

The US Inflation is the gradual loss of purchasing power, reflected measures how much more expensive prices for goods and services have become over a certain period, usually a year.

Inflation is the gradual loss of purchasing power, reflected measures how much more expensive prices for goods and services have become over a certain period, usually a year.

U.S. Inflation: Understanding Why Prices Are On The Rise (PHOTO: USA Today)

Understanding The US Inflation

US Inflation may be one of the most knowledgeable words in economics. The Federal Reserve is trying to lower by aggressively raising interest rates, even if it pushes the economy closer to a recession.  According to USA TODAY, prices are still soaring, making it more difficult for many Americans to make ends meet. The Consumer Price Index, or CPI report, was published on Tuesday and provided key information on the prices of various consumer goods and services and how much they have risen over the past month and year.

Inflation can be caused by several aspects and the most familiar is “a macroeconomic excess of spending over the economy’s relative ability to create goods and services. Another cause of inflation is the deficiency of producers. If there are not enough workers to yield the demanded good or service, this would lead to an increase in prices as well.

There is also a level of “built-in US inflation” within economies, where systems try to get inflation to revolve almost a steady percentage. In America, the Federal Reserve System’s target inflation is 2%. This means businesses can increase prices by 2% each year, and the market will still be competitive. Workers can also ask for a 2% wage raise based on these increases, so they can still afford goods and services.

Measuring US Inflation

The cost of living depends on the prices of many goods and services and the share of each in the household budget. To measure the average consumer’s cost of living, government agencies perform household surveys to determine a basket of commonly purchased items and track over time the cost of purchasing this basket such as housing expenses, including rent and mortgages, constitute the biggest component of the consumer basket in the United States.

The expense of this basket in a given time expressed relative to a base year is the consumer price index (CPI), and the percentage modification in the CPI over a certain period is customer price inflation, the most widely used to measure US inflation. Core consumer inflation concentrates on the underlying and persistent trends in inflation by removing government- set prices and the prices of the more volatile products, such as food and energy, and the most affected by seasonal factors or temporary supply conditions. The overall calculation of the US inflation rate, say, and not just for consumers requires an index with greater coverage, like the GDP deflator.

The CPI basket is generally maintained over time for consistency but is periodically changing to reflect consumption patterns. This shows how average prices change throughout the time for everything produced in an economy, the contents of the GDP deflator vary each year and are more current than the mostly fixed CPI basket.

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