Inflation figures can sometimes be distorted during rapidly changing monthly statistics, as we see now. As a result, it may not accurately reflect the actual inflation rate trend or the rate of inflation today.
What is reported is the annual rate which distorts what is happening from month to month. A yearly rate would be acceptable if you looked at a longer trend of comparing years. For most, the monthly trend is more suitable for understanding the direction and deciding when to invest longer or shorter or buy now or later.
This distortion occurs when a period of inflation is followed by a period of lower or higher inflation, making the current inflation rate appear higher or lower. This is because the current inflation rate is being compared to a period of 12 months previously. In the case of the current inflation rate, the lower inflation rates from the past nine months are making the current 5% rate appear higher than it would if compared to a shorter time frame. (Editor's Note: If this makes your brain spin, you're not alone.)
The media plays a role in distorting inflation figures during times of rapid change when they report the number annually almost exclusively. For example, the media is reporting a 5% inflation rate now, but over the past nine months, inflation slowed to 2.7 or, if adjusted for 12 months, 3.6% for comparison's sake. This is how focusing on the annual figure can lead to a distorted perception of the actual inflation rate trend. This occurs in the reverse of what is happening now when the inflation rate is rising.
The Fed's decision to raise the discount rate to 5% in March may dampen inflation, bringing the rate closer to the Fed's typical 2% target. The Treasury's I bond, the "everyday citizen's inflation hedge," is adjusted every six months and is expected to yield 3% or less after 6.89% and 9.21% for the previous six-month periods. So as you can see, the rate of inflation is rapidly declining.
About the Author
Robert Jennings is co-publisher of InnerSelf.com with his wife Marie T Russell. He attended the University of Florida, Southern Technical Institute, and the University of Central Florida with studies in real estate, urban development, finance, architectural engineering, and elementary education. He was a member of the US Marine Corps and The US Army having commanded a field artillery battery in Germany. He worked in real estate finance, construction and development for 25 years before starting InnerSelf.com in 1996.
InnerSelf is dedicated to sharing information that allows people to make educated and insightful choices in their personal life, for the good of the commons, and for the well-being of the planet. InnerSelf Magazine is in its 30+year of publication in either print (1984-1995) or online as InnerSelf.com. Please support our work.
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