Inflation

Become a sponsor »

Inflation has been described as a both a general condition of rising prices, measured by increases in the Consumer Price Index (CPI), and an expansion of the money supply that causes a currency's value to fall. U.S. CPI-based annual inflation has risen steadily through 2008 and by September was above 5.3%.

Inflation defined by rises in CPI measurements focuses more on inflation's results rather than the causes of inflation, some argue. Earlier definitions, by contrast, stressed its origination through a sudden increase ('inflation') in the supply of currency and/or goods to an economy.

History

According to InflationData.com, a tracking website, the CPI-based annualized monthly U.S. inflation rate has varied from 3.94% in April to 5.60% in July 2008. The site claims it measures the inflation rate accurately to two decimal places whereas the U.S. Bureau of Labor Statistics, which compiles the raw data, calculates the rate to only one decimal place.

According to the Bureau of Labor Statistics, the Consumer Price Index only increased .1 percent in November 2010 on a seasonally adjusted basis. In all of 2010, the index increased 1.1 percent before seasonal adjustment.

In the beginning of 2011, the Financial Times reported that inflation would be a common theme in the new year. Inflationary pressures have been building from the developed countries such as the United States and Europe as well as emerging markets like China and Brazil to the smaller markets like Thailand, Malaysia and Vietnam. Investors are left in demand for index-linked bonds that offer protection against rising prices. Inflation will also change the way investors look at emerging markets as they decide if the overheating risks outweigh the respected countries' positive growth.