CPI Shows an Increase – Is Inflation Set to Go Up?

CPI Shows an Increase – Is Inflation Set to Go Up?

Even as the government advertises the low inflation rate as a positive development in the slowly recovering U.S. economy, the consumer price index has recorded the largest increase from the end of 2009. The Labor department recently released the CPI statistics that show a 0.2% increase that comes close on the heels of the 0.1% increase recorded in December 2009.

The Federal Reserve is still continuing with its many programs designed to instill consumer confidence and boost economic stability, in spite of the fact that increased inflation is usually associated with a recovering economy. While economists have stated that the inflation levels are not likely to drop any further, they are also being cautious about taking any stance indicating an economic turnaround. It appears that they believe the price rise is too swift to be considered the beginning of a full fledged trend. Until more time has passed, it may not become clear exactly how prices will look in the coming months. However, many economists are terming the increase as the desired outcome of the many fiscal measures that the government put in place during the recession. From this perspective, the improvement in inflation may be perceived as a measure of the success of the policies.

The increase has exceeded the expectations of economists who had predicted a 0.1 % gain. The major contribution to the current increase comes from the fact that air fare and apparel have both become costlier now. Cost of shelter has continued its upward movement for the fourth month in a row.

However, Fed President (Chicago) Charles Evans believes that with the unemployment rate still hovering at high levels, the increase in inflation does not really mean much in terms of representing economic improvement. The labor market has definitely a long way to go as is clear from the rise in unemployment wage benefit applications in recent weeks.

Taking a completely opposing view, the Fed Chief in Dallas, Richard Fisher, believes that it is time for the government to ease off with stimulus programs to ensure that no further pressure is added to prices, pushing them up. He categorically stated that he could not see any reason for further government initiatives on the same lines.

Investors do not appear to be unduly worried about the possibility of increasing prices that the rising CPI indicates. Prices for Treasury instruments showed an improvement while stocks continued to be popular modes of investment for various investors.

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