Consumer Price Index of the US rise for the 6th month – Showing signs of mild inflation

In spite of the relief in gasoline pumps and slight increase in the prices of some consumer goods, rising home prices is gradually giving boost to inflation among consumers. The CPI or the Consumer Price Index is what the Americans pay for every little thing from radishes to razors and as per recent reports by the Labor Department, it has risen by 0.1% in the month of July, 2015 from June. From the previous year, 2014, prices are slightly up by 0.2% but if you exclude energy categories and volatile foods, the gain in the CPI was a solid 1.8%. 

Consumer Price Index inflation

The continuous rise in core prices is actually a reflection of larger rent payments and mortgage instalments. As compared to 2014, shelter prices increased by 3.2% in July which was the largest yearly increase since 2009. However, not including the shelter prices, the prices plummeted by 1.2%, showing a huge drop in prices of gasoline. Shelter is one of those largest components of consumer price index or CPI, which accounts for more than a third of the total measure. 

Increase in housing costs is cutting down the income of consumers

The average rise in rent usually reflects a dearth of multi-family homes and a research group suggested that the increase in housing prices is blowing a hole in the wallets of the consumers as the prices are consuming a large part of their disposable income. Hourly wages, at the same time, has been rising very slowly, up by only 1.9% when it was being adjusted for inflation. Despite lower prices of gasoline, this restrains the ability of the consumers to spend more. 

Then what is holding inflation in check? 

Well, the sluggish demand among the American people and also among their counterparts in Europe and China is one of the contributing factors for holding inflation in control. One more noteworthy reason might be the decline in the prices of gasoline, down by 22.5% from 2014. However, according to a seasonally adjusted review, the gasoline prices increased by 0.8% from the month of June. As per the US Energy Information Administration, there has been a sudden decline in prices after they touched their peak levels in 2015.

Does the strong US dollar play a role in holding back the CPI?

By making imported goods and items comparatively more affordable, a strong US dollar could be playing a vital role in tethering back the CPI. Prices for those goods which were usually imported fell last month. Home furnishing prices and prices of toys fell by 0.5% and 0.2% respectively. On the other hand, footwear and apparel prices rose in July. 

Economists are concerned about slow inflation

Continuously low inflation can slow down the normal pace of increase in wages, thereby making it even tougher for the households and the individuals to pay back debts. The policy makers of the Federal Reserve are supervising the picture of inflation so as to make the decision of increasing interest rates for the first time since 2006. While the Fed is looking for inflation to rise eventually, the officials indicate that this could lift rates in spite of a mild inflation overall the country. 

Accompanied by employment growth, rebounding inflation might probably lead the Feds to increase the interest rates in the month of September.

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