Don’t be fooled by rising consumer price data, take a peek behind the numbers: Nitu Gupta

Here is a comprehensive analysis of the rising consumer price data and why you shouldn't be fooled by it:

The Consumer Price Index (CPI) is a measure of inflation that tracks the prices of a basket of goods and services that consumers typically buy. The CPI rose 3.2% in the 12 months ending in July 2023, the fastest pace in 13 years. This headline number could be a bit misleading, however, as it is partly caused by changing year-over-year comparisons.

For example, the CPI for gasoline rose 41.7% in the 12 months ending in July 2023. This is a significant increase, but it is important to note that gasoline prices were very low in July 2022 due to the COVID-19 pandemic. As a result, the year-over-year comparison is artificially high.

If you exclude gasoline from the CPI, the inflation rate is much lower. The CPI for all items excluding food and energy rose 2.7% in the 12 months ending in July 2023. This is still higher than the Federal Reserve's target of 2%, but it is not as alarming as the headline CPI number.

Another factor that is contributing to the rising CPI is the rebound in the economy. As the economy has reopened, demand for goods and services has increased. This has put upward pressure on prices. However, the economy is still growing at a moderate pace, and there is no sign of a rapid acceleration in inflation.

In addition, the Federal Reserve is expected to raise interest rates in the coming months. This will help to cool inflation by making it more expensive for businesses to borrow money. As a result, it is likely that inflation will start to decline in the coming months.

So while the headline CPI number may be rising, it's important to take a closer look at the data to get a more accurate picture of inflation. The evidence suggests that inflation is slowing down, and it is unlikely to reach the levels that some economists have been predicting.

Here are some other factors to consider when interpreting the CPI data:

* The CPI is a backward-looking measure of inflation. It measures prices that consumers paid in the past, not the prices they are paying today.

* The CPI is based on a fixed basket of goods and services. This means that it does not account for changes in consumer behavior. For example, if consumers start to buy cheaper substitutes for goods that have become more expensive, the CPI will not reflect this change.

* The CPI is not a perfect measure of inflation. It can be affected by factors such as changes in quality, taxes, and government subsidies.

Overall, the CPI is a useful tool for tracking inflation, but it is important to keep in mind its limitations. When interpreting the CPI data, it is important to look at the big picture and consider other factors that may be affecting inflation.

Here are some additional thoughts on the rising consumer price data:

* The rising CPI is a concern, but it is not a sign of a runaway inflation. The Federal Reserve is likely to raise interest rates in the coming months, which will help to cool inflation.

* The rising CPI is partly due to base effects. This means that the prices of some goods and services are rising because they are starting to recover from the low levels they reached during the COVID-19 pandemic.

* The rising CPI is also due to supply chain disruptions. These disruptions are making it more difficult and expensive for businesses to get the goods and services they need.

* The rising CPI is putting pressure on household budgets. However, most households have built up significant savings during the COVID-19 pandemic, which should help them to weather the current inflation.

Overall, the rising consumer price data is a concern, but it is not a sign of a crisis. The Federal Reserve is likely to take steps to cool inflation, and most households have the financial resources to weather the current inflation.