US Inflation Rate Forecast 2013 - Current Inflation Rate
Inflation is the rise in prices of goods and services in an economy over a certain set time period. When prices rise, for the same level of income, the consumer can purchase less, which means they have less purchasing power and are “poorer” compared to the previous time period. The inflation rate is the annualized level of price changes. Excessive growth of the money supply is one cause of inflation. When the government adds more money to an economy, it devalues each bill already in circulation, lowering the value, as it now will take more money to purchase the same good or service. Inflation is not a problem if it is very low; but, once it escalates, it causes severe economic problems.
Following the global recession, many countries still lack resurgence in their economic growth levels. Many central banks around the world have used their primary tool, aggressive quantitative easing, to try and revive economic growth.
One issue with quantitative easing is that it can drive a currency downward in value. This can have some positive effects in improving economic growth by making that nation’s goods cheaper and driving exports; although it can hurt economic growth, as the price of imports rise, driving up inflation.
This is a tough goal to achieve, in trying to increase economic growth through a very blunt tool, that of quantitative easing. Whereas some initiatives have laser-like precision, quantitative easing is not one of them.
One nation that has recently embarked on a very aggressive quantitative easing program, and will continue to do so, is Japan. In November, Japan elected a new Prime Minister, Shinzo Abe, who called for a very large quantitative easing program to jump-start economic growth. Since the election of Abe in Japan, the yen has fallen by approximately 15% against the U.S. dollar.
This has certainly helped Japanese car makers. Recently, the CEO of Ford Motor Company (NYSE/F), Alan Mulally, voiced his concerns that the Japanese yen’s decrease is increasing the level of competitiveness for Japanese car makers. According to the American Automotive Policy Council, Japanese car makers have a currency advantage worth approximately $5,700 per vehicle. (Source: Philip, S., “Ford CEO Says He’s Concerned About Effect of Weaker Yen,” Bloomberg Businessweek, March 26, 2013.)
The natural question is: if quantitative easing does help economic growth, why doesn’t every nation just do this? … Read More
Just like he did in 2011, President Barack Obama is taking another stab at increasing the federal minimum wage in order to help the lowest income earners in America. With the President’s proposal to raise the minimum wage to $9.00 an hour by 2015 from the current $7.25, in theory, the move upward shift should help, as it translates into roughly $3,640 extra annually. The proposal also links the level of the minimum wage to the inflation rate after 2015.
The rationale behind the President’s thinking makes sense, and I truly wish it could work; but my view is that the impact of higher jobs market wages on the lower level service and manufacturing jobs across America could likely drive prices on goods and services higher for the consumer, which means greater inflationary pressure. If this becomes the case, you will need to start investing in gold.
For instance, higher jobs market wages for service jobs, such as restaurants, will likely not be absorbed; rather, the higher wage costs will mean higher food costs at all levels from fast-food to high-end restaurants. The impact will be especially hard on the low income earners who, in general, may be more inclined to eat fast foods. The same goes for other goods and services, which means that while the lower income earners would earn more money with a rise in the minimum wage, they’ll end up paying more for goods and services.
But something needs to be done due to the widening income gap between the rich and the middle class and the poor in America. In America, the rich are getting … Read More
Sometimes it is interesting to get a different perspective by looking at other nations around the world and how they are dealing with their economies.
The U.S. economy is certainly not booming, although the latest data have shown some contradictory indications. On the one hand, job creation is not occurring at an extremely fast pace; however, there are signs of an economic recovery in certain sectors, including housing, vehicle sales, and energy.
Germany, on the other hand, has had a lot of success, even though its neighbors have been embroiled in a large amount of economic stress due to their financial crisis. The economic recovery of Germany goes back many years, with structural reforms, made over a decade ago, that have prepared its economy to be extremely competitive internationally. The decrease in the euro has only helped the country’s economic recovery.
According to the German Federal Statistics Office, exports for the first 11 months during 2012 grew 4.3% to $1.3 trillion. This includes a 10.4% increase in exports to non-European Union (EU) countries. In another report, conducted by the Federation of German Wholesale, Foreign Trade and Services, export growth is expected to increase by five percent in 2013. (Source: “Booming Sales Beyond Europe German Exports Seen Hitting New Record in 2012,” Der Spiegel, January 8 2013.)
These are record levels of exports for Germany. Clearly, that nation has been able to engineer a decent economic recovery in spite of its weaker European partners. Job creation throughout the financial crisis has been quite strong, as Germany currently employees over 41 million citizens, the highest level ever recorded.
Much of the problem … Read More
According to the minutes from the Federal Reserve meeting on December 11–12, it now appears highly likely that the aggressive quantitative easing policy might end sooner than most people had expected. This is a shock to many market participants who had expected an extended period of time under the current quantitative easing policy by the Federal Reserve.
The minutes of the Federal Reserve meeting show that several members stated they believe that the current quantitative easing policy will end, “well before the end of 2013.” Other Federal Reserve members expressed their opinion that this quantitative easing policy will need to be completed by the end of 2013. Many market participants expected this current quantitative easing policy to last well into 2014, perhaps even into 2015. (Source: “Minutes of the Federal Open Market Committee,” Federal Reserve, January 4, 2013.)
The reason this statement is so important is that multiple Federal Reserve members voiced concerns and were of the opinion that the current quantitative easing policy needs to be reduced or completed sooner rather than later. While there was one Federal Reserve member who stated at a meeting before that no further bond purchases are needed, one voice is not enough to alter the opinion of an entire committee. But now, there are many Federal Reserve voices raising concerns.
Because this is the first real evidence that a large number of Federal Reserve committee members are voicing the opinion that the current quantitative easing policy will need to end relatively soon, one must take note. This is a pivotal point for potential change in monetary policy.
With this in mind, if the … Read More
One of the most important sectors of the economy is the housing market. The housing market is crucial for several reasons. First, the housing market employs a lot of people, both directly and indirectly. This includes the direct employment of people in the housing industry, such as tradesmen and homebuilders, and the indirect employment of people in related industries, such as the automakers that build pickup trucks to be used by tradesmen and homebuilders.
Another crucial factor is the direction of home prices. We’ve now seen continued strength in home prices, which is a positive for the homeowner. Considering a house is the largest property many citizens own, to see its value continually decline is mentally and emotionally difficult. However, with month after month of steady gains, this will help alleviate some concerns about the future.
According to the latest report from research and analytics firm CoreLogic, Inc. (NYSE/CLGX), in October 2012, home prices, including distressed sales, jumped up 6.3% nationwide. This is the largest increase for home prices since June 2006. This was not a one-time jump for the housing market, but the eighth consecutive month of year-over-year nationwide increases in home prices. (Source: “CoreLogic Home Price Index Marks Eighth Consecutive Month of Year-Over-Year Gains,” CoreLogic, Inc., December 4, 2012.)
In regards to homebuilder sentiment for the housing market, which is correlated with home prices, confidence continues to rise. According to the National Association of Home Builders (NAHB), confidence by homebuilders in December rose for the eighth consecutive month. This is the highest level of confidence by homebuilders since April of 2006. (Source: “Builder Confidence Continues Improving in December,” … Read More