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The Inflation Beat
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February 2020 US Inflation Rate: 2.32%
      The inflation rate in February of 2020 continued to be elevated running at 2.32% year over year Vs. January's 2.49%.  The overall trend in inflation has been moving higher and remains elevated relative to recent historical levels.

     Everything is about to change. The coronavirus's impact on consumer and business's behavior coupled with Governent response will have very volitile impacts on the rate of inflaiton in the coming months. 

     Below is a 1 year chart of US inflation year over year.  Inflation held steady for the first 3 quarters of 2019 before breaking out in the 4th quarter.  Now moving into 2020, inflation is running hot.  This could very well change as deflationary forces are kicking in.  

     The good news is, Americans are fully employed and are earning high wages.  Median real household incomes are at all time record levels.  Work and profit.  Let's not get ahead of ourselves, there will be severe straints on many American's incomes due to lack of demand.  It's this lack of demand that is causing prices of commodites and the cost of money (interest rates) to plummet.

     The recent market events that have been unfolding include plunging oil prices.  Consumers will see this at the gas pump soon enough.  At the same time, interest rates have plummeted.  This too will reduce input costs of debts outstanding leaving more money left over for additional expenditures/investments.  

     These are all deflationary forces.  The Fed and the US Goverment will not let this stand and I would think they will implatment fiscal measures, like running even higher deficits to ensure sufficient monetary (debt) growth continues.  

     The extent of the pullback in borrowing from both consumers and business is to be seen.  There will likely be many defaults as well and this will hamper aggregate debt growth.   It's the NET debt growth that counts. As folks and businesses pay down debt or default on debt, the overall creation of new debt is what is needed to provide the money for future profits, wage increases and money that will be used to pay off existing debt.  Hence the critical need for debt issuance and the Federal Governement is the borrower of last resort.  

     
   

      Below is my inflation forecasting array.  For a better understanding of how it works, visit the inflation forecasting methodologies pages in the link at the top of this page.