The Return of Inflation?

Inflation has been MIA for the year so far. The Consumer Price Index (CPI) for June came in at 0.7%, slightly higher than anticipated. This was the largest rise since July 2008. Most of the rise was due to gas prices. Core CPI stayed tame at 0.2%.

The Producer Price Index (PPI), considered to be a better measure of inflation by Alan Greenspan, soared 1.8%. This is double the 0.9% that was expected. The is the steepest gain since November 2007. Taking out food and energy, core PPI came in at 0.5%. This is significantly higher than the expected 0.1%.

While these numbers are not as large as we have been accustomed to seeing, these are nevertheless rising. A sluggish economy coupled with inflationary pressure is an issue for any government. Given the slack that we have in our economy with inflation lower than the historical average means that we do not have to be worried...yet. Energy has been the main cause for the rise in inflationary measures. With energy prices subsiding the past two weeks, I see little reason to worry. However, if these numbers keep rising month after month, we will have to see action by the Fed which could be disastrous. If you are looking to keep money out of stocks but still beat inflation, fixed income is the way to make cash money. I recommend CDs.