Last week the Bureau of Labor Statistics (BLS) announced that
inflation had flared up for the second consecutive month. From
average Americans with savings accounts to Ben Bernanke and the
Fed, rising prices could change how people look at their financial
responsibilities.
The BLS found that the Consumer Price Index rose by 0.6 percent
in September, the second consecutive monthly increase by that
amount. Over the past year, inflation is still just a mild 2.0
percent, but considering that more than half of that increase
occurred in the last two months, it is the
recent acceleration of inflation
that is worrisome.
The potential effects of inflation
Here are four things to note on rising inflation:
-
Wiping out a year of interest on savings
accounts.
If 0.6 percent doesn't sound like much inflation, keep in mind
that this is just one month's increase. If inflation continued at
that rate for a year it would amount to more than 7 percent. To
look at it another way, September's inflation alone was enough to
wipe out the value of a full year's worth of interest on most
savings accounts. Taken together, August's and September's
inflation were enough to wipe out the value of a year's worth of
interest on even the
highest-yielding savings accounts
.
-
More than an aberration?
Any given month's inflation number can be dismissed as an
aberration, but on the heels of an identical increase in August,
September's inflation takes on greater significance. Once may be
an aberration, but twice starts to look like a pattern. October's
inflation number will show whether this has the makings of a
trend.
-
Don't blame the Middle East.
As was the case in August, higher gasoline prices were the
driving force behind September's inflation. It's customary to
expect that higher gas prices were driven by a rise in crude oil
prices, but that was not the case in September. Crude oil prices
actually leveled off during the month, while retail gas prices
continued to rise. It seems it was more domestic
supply-and-demand issues rather than crude oil prices that drove
gasoline higher this time around. The good news is that so far in
October, both oil and gasoline prices seem to have
flattened.
-
Gives them something to talk about.
The resurgence of inflation should make for a lively discussion
at next week's Fed meeting. If inflation looks threatening, the
Fed may have to back off from its low interest rate policies a
little bit. Recent improvement in unemployment actually gives
them a little latitude to do that. Given the chronic weakness of
the job market, it's unlikely
the Fed
will adjust course just yet, but between the latest job and
inflation numbers, it suddenly has a changing set of conditions
to take into account.
Between the presidential debates and the World Series, the high
inflation number received relatively little press this week, but
that may be one more reason to worry. It's generally the economic
problems people don't see coming that hurt the most.