Kameron Osterman
A2 Reuter
Econ
March 2016
Rise in Inflation in America
Could the US be facing a problem with inflation? In the month of January, the spending by consumers all across America rose absolutely. Due to the winter temperatures which causes a greater need for heating, as well as the increased purchases on foods and other services. According to the Commerce Department, consumer spending has risen 0.1% in December, keeping in mind that consumer spending counts towards about two thirds of America’s economic activity. The US central bank looks to keep inflation at around 2% and below. Personal Consumption Expenditures or PCE, are the measures of price changes in consumer goods and services. The PCE increased around 1.3% in the past 12 months through January. This increase is the largest since October of 2014. 0.7% of this increased happened in December. Prices rose 0.3% (not including food and energy). Due to the higher consumer spending and a slowly rising rate of inflation, the Federal Reserve increased their benchmark interest rate in December. This is the first time it has been raised in the last ten years. The graph below shows the inflation rates from 2006 to 2016. With minimum interest rates rising, this leaves a little chance for an increase in economic growth for America.
One of the main causes for the increase of consumer spending was a rise in income across America (around 0.5%). The second largest increase was in June and adding a 0.3% in the month of December. In some states, minimum wage has been increasing (Approximately 0.2% in December). Regular wages and salaries went up about 0.6%. With minimum wage rising in some states, there will be an uneven money-value across the US. Inconsistent wages/salaries along with the inconsistent value of money across America causes inaccurate calculations of how much money is really worth to the country as a whole.
Works Cited:
Reuters. "US Consumer Spending Rises; Inflation Stirring." CNBC. 2016. Web. 03 Mar. 2016.
"Current US Inflation Rates: 2006-2016." US Inflation Calculator. 2008. Web. 03 Mar. 2016.
Very interesting piece Kam, many of the stats about prices, inflation, wages and so on really drew my attention. I liked how you started with a question, it got me thinking as a reader. After reading about how consumer spending has increased, most likely due to the increase in wages, it makes sense that the price change in consumer goods has increased as well. I was surprised though at how much it has increased, all the way up to 1.3%, which as you said has been the largest since October of 2014. With all these numbers being unstable and changing it makes it hard for the economy to grow. As of right now I feel that the economy isn't facing a problem with inflation but if we don't figure things out in the near future we definitely could.
ReplyDeleteI like how you incorporated how colder temperatures would lead to an increase in consumer spending, however, I would argue that the increase in spending was somewhat residual from the holiday season, with gift buying and hosting parties, like New Years. The reason why I believe heating would not truly affect consumer spending is that in the summer, home owners are spending the same amount of money on air-conditioning. Also, I do agree with your idea that inflation has become much more of a problem, with the Federal Reserve printing more money than ever.
ReplyDeleteI thought you picked a really interesting topic; inflation is a constant issue that tends to come up in the news a lot, especially considering the upcoming election. You included a lot of nice facts and the graph was very helpful as a visual (maybe just crop it and make it bigger next time so it's easier to read). Your last paragraph was really the icing on the cake because it got at the source of the issue. If we trace economics back to earlier centuries and look at the effect of inflation it's actually not as big of a deal as many make it out to be because consumers are making more in their jobs; therefore, the increase in income is proportional to the rate of inflation. However, inconsistency is a problem and you started to mention it a little at the end. The minimum wage debate has a large role in debates about inflation because a bigger minimum wage leads to a large increase in overall wage for all Americans which in turn leads to more spending causing a shift in demand that leads to inflation. The inconsistency, however, makes some people in some areas better off or the same as they were before, while others are suffering.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteThis is an interesting topic to talk about considering we all really don't pay attention to the Inflation rate. And that it always rising which is a good thing because if you look towards the past the dollar was worth more. And you could buy more for you money. But now as interest rates are rising the economic growth is decrease. But one main cause that was mentioned good was the rise in income in America. Also with an increase in wages and salaries and inconsistent value of money it is hard to make accurate calculations of what the true value of money is. Overall you did a really good job talking about the rise in inflation in America and how that has impacted the dollar.
ReplyDeleteI feel that this increase would happen annually causing the producers to receive more money and lower the cost like we learned in class. this increase would keep on happening causing this to become a normal investment in the market for people around the world.
ReplyDeleteInflation will always be a problem in the U.S, due to many reasons, but I never thought about how the change in temperature could affect the inflation rate. But it makes sense when the winter months come around, people are willing to spend more to keep warm. However, even with the inflation increasing, doesn't necessary mean it's a bad thing. Yes, prices are higher than usual, but as you mentioned there was an increase in consumer's income, which means people are willing to buy more goods and services which then raises the nation's GDP. And as other states are raising their minimum wage, it might cause the money value to be inaccurate, but more people will be willing to work and then increasing the employment rate in the U.S.
ReplyDelete