Economis Inflation and the Us

USA Inflation rate

This is measured using the Consumer price index (CPI) which is a measure of the overall cost of the goods and services bought by a consumer by the US department of Labor.

The trends occurring in the inflation rate of USA are:

- In the first quarter the was reducing inflation, which continued to reduce from 0.58 in the first quarter to 0.18 in the September quarter, a drop of 0.40

- It then began to rise drastically and reached 0.82 by June a rise of .64 before falling again in the 3rd quarter

- In Dec 2008 that's when we see the highest rise with a peak of 1.32 averaged. A rise of .97, after this quarter it then fell to a low of 0.39 in the 1st quarter of 2009.

- On average, the inflation as falling since March 2009 to the 3rd quarter of 2010 with a record low of 0.07, an overall drop of 0.32 over 2 years.

- In the 4th quarter of2010, the inflation began to raise again drastically fromo.07 in September to 0.65 in the 1st quarter of this year before starting to fall again and in the last recording at the start of the September quarter the US inflation is currently at 0.09.

1B) In 2008 the cause of the drastic up rise of inflation from December 2007 to a high of 1.32 in the December quarter of 2008 is the fact that the U.S has a flat monetary system that doesn't represent anything like gold or other currency minerals but is solely given value by debt that exists. As time goes on and the monetary base expands, money becomes worth less and less until eventually it becomes worthless. Versus the value of gold the dollar has lost about 90% of its value since the creation of the Federal Reserve. (Economics help, 2008) The only reason why it potentially makes sense to have a fiat currency is that increases in productivity (through either technological or social development) make it cheaper to produce goods and raises the standard of living for all. In 2008, the levels of borrowing became too high to actually sustain the currency and interest rates began to shoot up as house hold+ business debt was higher than the GDP meaning loanable funds where less and there was a budget deficit.

According to the New York Times, the debt crisis that affected U.S.A at the advent of this year is the major cause of the rise of inflation in the March quarter. What happened is that the US tried to solve the problem by adopting quantitative easing instead of printing more money. This occurs when the reserve tries to reduce interest rates by expanding its balance sheet but if the monetary base does not meet the velocity of money in the economy, the result is the same as printing money in that inflation will rise. (David Barboza, 2007)

It is stated that the increase in inflation in the 2011 quarters was also due to the seasonally adjusted increase in the all items index as a result of the above, with continuing increases in the indexes for gasoline, food, shelter, and apparel. The gasoline index rose for the 12th time in the last 14 months and led to a 1.2 percent increase in the energy index, while the food index rose 0.5 percent, its largest increase since March. ( BUTTONWOOD,2011) This then causes an increase in general prices of commodities causing a scenario where one US dollar now buys less than it could in previous times. This is why inflation rose in the March quarter.

Overall, the high inflation in the US is always solved by cutting down interest rates and cutting down on debt access so as to ease the situation and this is how they reduce their inflation but because they use quantitative easing all the time, a cycle is created.

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