Just looking at the increased number of “HELP WANTED” signs hanging in business windows and the rising prices on restaurant menus, I suspected that inflationary pressures were building. Then I validated my suspicions by looking at Bureau of Labor Statistics data.
Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 12 Mos
0.2% 0.3% 0.3% 0.2% 0.3% 0.6% 0.1% 2.7%
As can be seen in the above table, consumer prices (CPI) rose at solid rates August 2016 through February 2017. However, with oil prices dipping recently, February’s increase was only .1%. Still, February was the 15th straight month that the 12-month change remained in the range of 2.1% to 2.3%.
The CPI is up 2.7% over the last 12 months, the biggest year-on-year advance since reaching the same level in March 2012. It was last higher February 2012 at 2.9%.
The Fed is getting what it wants: higher rates of inflation. It will be interesting to see how the Fed reacts when CPI increases hit 4%. One would think that 4% rates of inflation would be denounced by the Fed. However, several Fed board members and other establishment economists have stated that rates higher than 2% may be needed to get the economy going.
Keep in mind that steadily rising prices increases expectations of still higher prices. Consumers buy today out of fear that prices will be higher tomorrow.