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Inflation: The Real Reason the Fed Raised Interest Rates?
My theory on why the Federal Reserve raised interest rates this past Wednesday is one of those “I didn’t see anyone look at it from that angle” points of view. So here it goes…
We all know that, according to the Bureau of Labor Statistics, the Consumer Price Index (CPI), the official measure of inflation in the U.S. economy, rose by just 0.5% in the first 11 months of 2015. (Source: Bureau of Labor Statistics, last accessed December 16, 2015.). But we also know inflation is running at a much faster pace than that.
Let’s look at the “official” predictions of inflation from the Fed: it expects inflation to be 0.4% in 2015, increasing to 2.0% by 2018. And in the long run, the Fed expects inflation to remain around 2.0%. (Source: Federal Reserve, December 16, 2015.).
Alternative Measure Says Inflation Obnoxiously Higher Than Reported
To examine real inflation, I look at alternative measures of inflation, one of them being the Chapwood Index. This alternative measure looks at 500 things that actually matter to average Americans in the 50 largest cities in the U.S. economy.
According to the Chapwood Index, all of the largest 50 cities in the U.S. had much higher inflation over the trailing 12 months (June 30) than the CPI reports. The lowest inflation was registered in Kansas City, Missouri: 7.2%. (Source: Chapwood Index, last accessed December 16, 2015.) That’s 1,300% greater than the official inflation figures!
