Recently, we’ve been hearing a lot about inflation, and the government statistics released on April 15 didn’t do a lot to quiet the chatter. The government reported that the Consumer Price Index for All Urban Consumers rose to an annualized 2.7% in March, up from 1.6% in February. Troll through the latest batch of YouTube videos, and you might see observers suggesting that the Federal Reserve Board is printing money, leading the U.S. to another disaster.
The March jump is eye-catching, although the raw numbers are hardly alarming. Since 1914, the inflation rate has averaged 3.38% in the U.S., so the current rate is still below average. Moreover, a closer look at the various components of the U.S. inflation rate suggests that prices in general are not rising (as you would expect if a drunken Fed were printing money); most of the price rise is taking place in the energy sector. The gasoline index is up 27.5% over the past 12 months, which most of us probably suspected based on our last visit to our favorite gas station. The index for all items less food and energy rose just 1.2%–a rate one would hardly lose sleep over. Inflation (or deflation) are always concerns, but good investment decisions should prioritize the goals with the concerns. Decisions should not be made on the sensationalized news of the day.