..

... ,; ,,,

. .

... ESTO OF

ON

The worm "general 'P1Ti~El' level" jll'l the de'f~nHian ere verylilllporti3Jrtt. They mean that the term "hliUatiml"aplIllies. OirLtY~Q' a rise iml. the <l'!teF<l1g.e lC~t m[l~l~he Ull~ng~

we buy, ,ami not l.o @!'1 ~n~li1m~ in U1!e' price ,of oo'ly' ol1;E!ite!lil ar ctass or ~t~m~.

~'t hilS notI11~~o do wl~h ~f1fia:tlon" It~ just tnalt ar~oSit j~ Florida destroyed .. lqt of ~he orallge {:rtI,p. Witih the 5lIj}Jlly clownt, people who want o:ra,n~ have t.o

1)"'11" !TIJtlF@ fCl; U'i€'m" ,~~~

Orilil'l[l~ SlOf)' by: Ed SU!lll1oorg Revised D'lI':Ste:~en MaUn ,An: by; Jesse' Chen

2.

Of C10I.lrr!l(!!, i\i l~rge 'Irm~~~~>ein~oo p:rtcl!'of Olllii!' item UI'! sOlll'!e't:lrne~ ~~d to r~:l'Iid fl'iflaUOf'l _. th::lt ~$ ttl -Ill rap['(! ~ncre~se ~f11 ~he !!lQ!'U!f~~ prk:~ lC!'roI1il. For e;o;olmp~e. a very rOlp[d rll~e oJ oU prl()e~ OJ!.!td w,a(ito <l rlse tn tJhe g~!lera& pr~r::e le-vel. bec<lu~e! oll plays ak_e)i' ro'~eo thro~ghol.!l our eoorllJrny,.

Some ~oom~$ts use the term "cost·pulSh I rd~<ltiOi'l· ~o ref-er tJD Uil~ type o~ Inflation 'thi3J~ regil'k'i Willen Irl5;~rlg IPwaucHCirI costs c(lUlSe an increa:se fn pm::es. -()emalild-pull~r.rliltitln·' OtCms ...me.n peopte"S abiility

~D ~p~lild ri~ more f;j3,pil!!ly tihelfl the .avaiLability of s,Q!;lds ~!lId ~~ryi~:.

Wihat'!s WF,OIll!!l ""'l'th 11lIni3J~~on. aJl'IyW<lY? After aU, if prices ~D UP. people 'Who, sell l:tii~n~M;U IM~(eii'ie more d'oUlIl'5 lllijn t.i~ did ~fo~', Ttil!a~ ifl!I@ a n~ Umlilll~.Qm~ ~p U;p t:oo"

- Wmt,;"~, W~OIil~ w1th ~t?

OFilr;l ~n~wer i~ th"~ !i\lot everyoll!l~i~ illlC01TI1l! ~~ up ,,~ n'iiuch es prices do. lPeople 'Nh~i!! 'lrl'Comles r~e Iless th.;ln pri~- or dOflit nS(l! atOlJU. - otre hl.iif't by ~!1n<!Uon. 'I11-ey are IJl'llalc!etp buy, .a,tl the til, ~ni~ ~~y 1JSedito, mtlh tMEr flicome.

oI!!i!'FII:l!ilg UlO!ie hun by fl1na~iQfli3Jr~lemjerli wIhiI;I ~harge' ililt.er~~1; mt@~tillat. l;l:r~ ~f than ~ rat.'€ 'of infl1!l:iOflI.

Fer e::UUll1pw, ~uppo~ '~~nii!e!li;ter1!j!; .. QJ'I.e·year l-Oian at .m f!lterost, rate of 5~ "mdthen prices, go up 10'1 duirflng 'tIle ye~r; The ~end'er wlU ~ rep.a;kI wlith ffiOiWY tlil!!ot nas less: purdll3Sfi1S IPowerthillt; 't.!~dthe' money he

parted wiUl iii year' !MlFtier.

MlI!!Iyu~ti~~dp!\'olIll~ i1J'(i! hurl by ~rdlatiQ'1'I b~cau'Se' tn@ir p~liI~klrr.; don't "'~t!!gl' !,Ip wiltli!! r!'l'l::r~~~~I!il th~ price le~l.

iMla~ iM ,dm r'erloces the val.ule

,of peo,P~.e,'~S<lvin~ ~n plil~e il1er~a~, ~ne 1l1J"!l~r '01!iI~ th~ fnl~e~t f,a;~e~ tha~ p~opb;l ~eiveolill ~h(;'.lr '!i;l"or1!'1'gS o;I!(;:COYl!!ts.

l!!eCdIJi5El' frlnaUofl red'I1Da~ the ",alu:e of saviln!!h it~tv~.s pooopte' i!lnin~lffiItivel:O spend rathe.r than save,

~~~

By diSt;oiJra~in!!!saviFilil. jnflLaitioll1 COIn harm the U.S. 'emoomy. ThOit's be~au~e tim:- eoooorny flee~lI 5iJpply M ~a"'tirrg:; to prIDI'idie' the fumi5fof peop~e and bU$ill1les'5Els ttl ,oorrow !iiO that tn!l'Y ",an in !fest f'l'l tile tIliinRS ~ha:t hetp tlf1eo lLs.eoooomy grow.

l!lln<!t{~n ~f) "Wilt, WQ,by!Mns ~te an ir:lOOl1ltive to il'l!vest, In ways that do~'t Mtp tlile e<iol'l!omy Sf\Ow.

TO '~m<l!ble 'p~opl,e tOI pfotect Ulie pU~C:lll~s~ng power O'Fthe+r savln!~~he 'federal g<l'o'-emment began ls.sliintlfl1fILa;t~on'inde_;o:~ bonds 1!'1 19'97., Theoo bQl1cilSal1low poeop~e '00 tend t'iJ illhe pemrn;en,t, and then be repaid <'Ill! ilIIIlOO'llI. t:hil!t WiU ri5ein r,~::Iat.i{ln

- toO how mlil~h pnt:es rise,

~n~li3it~OIlr'll'~d~ QI'I iter. Wilell iI~lour mm has to pay hf!!lilner priClilsfor wheilt. row ~:XllliJ1lple', jt h1l5~a d~lI~e: lili!!lfi~.r ~~~S.riOr th~ flour tt ~ells. T~ ba"'erl~ ~h8i~ buy' the Hourthefl h~ve~Q c. hars.~. hij!!lh.' er ~~, :C'I?S rlOr the b:~a<l "mid cO!!kesthey :s.elil.

The 'pmc~r:an eats1ly become a

Vildo~$ ,cyc!Le, beca.use wlien wDrkers see th!i:1 priC~5, the,)" pay '&ofng up they'll pu5ih for higheor pay; Oin(;l d ~ir ernllllIlcYilm. ran~ titl>t'ir liJay,

'th~y1Il l:ia'rl'eW r:~i~ i!lri~ti!~ to co~r the rll)Cre.il!l~d !l"):P1ffi:S~. SIlm!! p~o~ 'C(!U thts; iP~S$ Ute ,;)_,'!l,e·prtce spl raJl ••

~-r~~ ~~~

111 ract,s'i11'liC!! WOrtd War II. mos,t recies.slo~s liIave 'rollowed a 5una'iood ~ncreaSie In the core Fate of ~nf1[.a:tlol1i",

"Core""innatIQn rere~ UJ, it\{; . . prilJe

le'fel,. e;.oc:~Lldiliilll fCiod <l!f\d e . . . . noes

iillre @!>!dudM Mt~i,lIS@ they are inl1!l~ocedl by S~~crl!l'l - <lila, ~ell!'lpoor\lJ~ - fae;tolf"!;, ~Yd1I!llS w~~;~li!er COJ1!dltloos lOr j:lroducllOfl d~cf~om; mad~ by on·,",xJXIrti!'!!!ooYntrtfo'~. sO' they mOlY p~e$i!nt, ~ Ii!'i!'$~e\;!dlf~. p~'tureof cont:rI'l;Liln~ prfce pres.'SilifeS 11'1 the ecoo~y.

Hyli)et'~l'ifl~~1o;l'I nOi$ OCClJrr~ ij numlxor Oif t'IIl1,~ - In 8ra~U ~l'id rw5si~. in the e~ rly '1:990'~. for e~<lmp:~e- o1!fld h<l~ oUen led to ~O!CI;)llJnrest.

A ~veiY nOlta:b~e ~pismle of tJ,yperirtr~;uioo occurred in Germa_rf!J In mel ~'205andletl ~I) gn1!1tsQCii'll unresr inthat country. ~n

tl1~ G~fllllal'l l'Iyperinniition,._tiI1~ rea! !Jurl:ha~i Ili~ ,power or mooeyF@ll so low . that the GermOln ClJrnfficy.~he· m~rki be~rnt! O! cheQper f·~!)lth.!!n nr~~.

We' ,1la1,/e SE>'en that ir'lrtatlM (an c.alJl>e uru::erta,irUy anc et:cnorrrft ana sada'l instability. But ""mat

Cll.IJ~ ·lflIrt.a.tioo?

The ar'l~Wer is tilla:tlnflatioo n~5'L1lts when tilE're is too rmxh mDrley a'oo crooit. ,;3 rOIJna in relll~~Qn to tile amount of C!!oods lIfld services, ay

"rmmey," we m@'ilri castJil'i circu~<'IHOfi and thr;l ~m\IiUfI~S th~t ~~O(l~ ill'ld OO!5jn~~es h.1V(l in bollllK OlCC~I~tS. "(redir rerers to the Olrn>auFlt$ lhca:t

Ilai'lk.s and other lende;rs:ltave lef'lt or have avaHOlibl.e to lerKI.

Wilfin ,pEoIllLe have I'tKIr~' rnol1~Y~Q5pend and me vo~umE (JIr .~i5 11m!! serVices d'oesn'til1crealSfl' as (;;1st, S!!lUer5 nllId that U1ey till'! ranie th~ir pr:l(Se~ and ~~n ~, mw:;h ;;I';i (tm~ did looftmi,

It's the: Job or the Federal iles.e"""e System ~lInownf,[lmnJ.'l!rty as ·tAle Fed") to Ifnakewre that lIliIoney ana croon dOn't l!lrnwtoo r.!:Piiiilly

and ~Lead to ~nfiLa;tiOIll" ..

The Fed's job OIrh,UlJiellCln:l! 1In:O~ andtJl1ed~it({J;n,dltiO!1S 1il1 the ecQlilCirlilYO(it~11 i~ 11 bal.am;ingllct. ~f money and credHt gnJiWtoo rap,idly. fl'lHlItiool ean Ir,€'wlt. lir !jll~ grow t.oo51OWly. 'ElilI@' result

- - ~.af!l Of! a f'f!\c~~i:o:I'I. .

Too 'skIw mooey IIndl crodn. !'"owth C<l!n C~Y~ ,~ feoes.'Sio~ br;t( .. tl!~ p~p'le ~nd bLl~fne'sst'~ won't be .tble, ,to get the mMlhey I'!eed~or majO'l' pUl'Cha~ at ·affon:llabile ~!1:~eren f~tes.

Re~rrIe req,lJJiBeml1nt~alf@, tJh~ pt:oport:illlilS of aep(]liits. that banks m~~t k~p ~lhillf inthekoWfl val!d,tor on dep.!}liit with .U'I~ IF~ •. ~~tu~Uy.BE;'~rV:e r~qufTfi!m~nt;<;, ~PPl.V n~t QrI~ta'W!l1o;s, llutlllm UI Qlh~r type~Df rrl'St]~~tiQ~ t~lIt aC(~pt GI~~l~, - C~U~ l!:r!l~'QrI~1 rQr @X(i!il1!pl@_ lfit ,.~s ~st;!. thQl,I8/fl. ~'U I!JI~ tile t~rm nb~nl':s •. ")

Iror eKilTl'l,pi.e, if' ~he reserve re'ql,linmumt b 1001\,. il Ila!nik 'that :r,ece:ive~ a S 11(110 ,ch~kiiil!l1 <I{Scoollit d~s,it mU!!it.lk€€p S1O, either ~nI it!!i Oll'\i'fl \'\!!ult or on d'@pD:s,it at UI~ F'ooe~lI& ~~_f'!j\~.

lOWO!lf reserve: ~iJi~m~tt~ ,elrn_<I!ble b,mi':sw lelld Ii1lQ:r~ of dl~~r ,rne~ltJi~ h:1W!er Ire'SIl!FIi\@ r~~uhm(\\!'It$ fohn!'!k tih~ av!!1tabil~t¥ o!~(:ir~d~~.

In prattuce, the Fed dOOlS not chan!le reserve F'equir,emenb;. ~~ry Oneil. In .2006,. 'for e·~ample, th@ r~Si@r.re F€!(luii'r@m@n't on cl:u!!Ck.in!! ilO[aUIT~~ ~d: b~~n l,I(:I'Ch@n!:l~d .. t H;~i'Qr '14 Y~<I!rs.

Whenth!! F~d lowws tne di~~'(I!,!!'It r<l~er it may be.," ind1nt'oi1 that it w~i.dd Uk'e to ~ @i'I 1fu::!feas.e

In credit ~ and in ~onomrc activity. 'Whefl tile Fed .FlIise5 U\E1 df~it:oont t,a'~e I it may be is,~!Jin!l a ~igf1a l tIh:~t ~t W<'Ints to, "rn-o[ off the ecOnomy," be-t<'l!JI5ie' ~t Is cencemed aibOllt the Uueat: of lnrlatiol'l1.

The d:tsCOlln~ 'Fi3Jle l~ tl<lern~erest rete lhat the Fed char~ [If! ~h(]lJ"t·term loa'f\'S:oo IJ;ank~ for any reason ..

Op@1'I malFkeil op€{,aUon§ ,m;!~h@ l'IliD!1etary p(lHcy ,tool that thll! F@d IJSe'5 1II1000l Qfum. ThesE! Op€f@tIOIl'ls;,whlCh i!lf@ c,ulri~C!I O<!.llt by til!;! Fede(a,l ~w~ ilank of Ne-w York 0'1'1 beIl1\!!tr o(the e;lltlre Feder.:lll@s,erve ~t.ern.c01'1,"~st

of bio.!ying or seUfns U.S'. '8PMernmem ~ec!Jrlt'le-s fromF1 rms ~_oown as pri ma,ry dellile~"

I~~~~~~ rn~~~~~

, l"hrl'~ d~~!, """HI h~lp us' OOl~I'fI'II~~ Wll~tI'U~, we l1ave to bl.!~ or sd U.S. I!!ovemments.ec~rl'tles todlil'l'

l2.

When the Fed I)I.fYS lJO'o'-ennJllent seQU~Ue~. It. por)'S t~r them byciredlt;inQ: the a.Gt::WritthIJJl the primary delllle,'~ Ibank ha'-i <l.t tihe F'l'a. fTlfJe' ba nlk.,in UiJrlil!, .::l!"etIlits the li'rtmll.ry d§ater'~, ilt~ot!nl.)

When the :F'ed ~lU~ ~~r1!ti!i!s. ~t me~i~ llillti!' paYIlnel'1t frlllTll th~bi!Jnk Qf ~~ b~!f. Th~t fed!Ke'St:h~ tt!t~~ acrnOI;!ii1t or fu~ds tl'i::lJt baJ~k.s can ~el'!dI.

The Fed ~eeps track of the value of lhe

Y. s. dQ~1;1l1' re1.a:tlve to ~li1Ie cillrrencies, Clrrnajor trildill'!! partners, :FOil' e:>:amp~e', d~pre(;iatio:n ~n the ooUilr rel;aU~ to J.cp.m's currenc:y, the yen, jncreil~. the Illi,.e Gf ~nl'1JII~1l1B importl1di frnm~ J~P!lIil •.

'5~mll1lJrly. the Fed watches data on tIh.'!l' IJJse of mlifiufadtJrililil C<lJla;elt)'; When ca,padly utUj\zat~oo .g,El!t's very hi1!l1, compani~ may hye~o, start uSing less effiCi1ent lnfla<:hineri, aM thatcan

teat! to w:slt and p:ri(E'iI'lGr~1II5es.

The ,problem is [ha:~ mRlint"":~m.,,". all the otd machine 16

. lnc~~ 'Ol;lr CO!it~, ~nd dl!';! mfl~l'IliIl~ O!Ilso use) more la-cor foi~ch UfJ,lIt o(QlJtP~lt. -- -

1F\5ca.l potky, which in".olve~ the use 01' g_(l'l'erlfllll1llJ1[ S<j}fmiifHl! illIlId~~x:es. iilS, ilno,tilEf - ~nti ·lnn~U~n t.oo!. It frrfhniQI'! lh:~(j''&~~I1I~, ~h.eg<iV .. ,em. !'!len.' c~n c~t i.ts S.·P'e.m!d1f!!!.alldl 'lhereb1i redIJC~ dem<!n~r>O~tlile av~H~ble $IJPP~li or goods andls.erv~oo[;.

'[0 fight il'lflatlon, the ~vemm~nt !;ou!da&.o fa~~ pef'S.(]Jlill inCome b!~e~. thus redi,.!ct[).~ spef!dalble fllcolll1e and tllle pqi~ate ,C!lem~ndl Jio(~ods a!llC!i servi~"

f'l$cal, pOli'Y hll$ sOiillle dlsadv!3!ittar:e~,thouilh, as a!FI <lntHnflaUon tOOl. For Cl:ile tJhtil~, It cain 'take ,~ lei'll!! ttme to get a tax or spend:Ii1; ~m throu.Bh Con,'\1:fes5.

Also, tax. ~j'u::re',ase~ and s.:pendii111 ~tS ean be pohUca~ly lunpopular, and m.emi!)ers 'of Co.il~SS rrlilY be w'e'I.uctaliit t.o' ... ore rl!)r~hern.

ArlOlhet dlsadval'lta!!iEl' of us.fll~ '5.Q.'rremmerlt. e?lperndi.ture cuts '~O fitgMinfhltiolrn i;~ t;hlltu~ C<I!n ~ Wi;iSJti~fl:il to tum ~pendii!'l~ on ~I'!dr (In d'e'~I)diI'!S on Wht:ltl'!~'" or !'IOtinflat:[on is ~ ~:C;lllr::elin,

For th1s reasoill i' monetary ~t[>cy h:n

become' the major weapon: .a,'Sa~i'lst, fnflaUoi1l. ~~~~~-I

QLllr OOI1§!titullfl:ts: willi, Iflil'!!'llf forgive Iilsif WI1!VO~t1!, n{)i~ W fund: ili1(l[~35€dl eeol'!omit; i1l'!dl nl1!al!llc:ii~'l ~d!,f()aiUOl) al!'l:d lilul1d b:rid®~s<.

fIiI~ liI'I~r,l~1(H1'1 Qflni~l<Jitign' ~et tJ'i,e ~la~e' 'Qr I!;!nusy~U.y IClI'!S eccmomHc c.~p~f\S.1Of!lS shl!cet9\S2.

Congress. $troctl!.lred~he FederO!~ ~(!rv.e System to sJ1eUer ith'QfiI1' dialy'OO",clOlY PQm~cal IpreS'5qJres, ~o that the Fedl could ptll'SlJie !policies . that I!lroiinO~e loflQ,·t;erm OConOl!ilit, ~rowtif!. thlat might be IJl1pop~l.ar.,

rm IfIDt ihil,PPY witih tile iF@J;Ii'!;ourreflit m~e~lIry r;J0licy, but U!)!l' IF'~ clo~~n'~ wrnE! W I!Isf~r !llPp:ro,Pn1~ttQl1h ~1'Id 5.10 I can't 1,I!o~ ~h.a.t infWellce to, ch<l!Ilse Its pdllcy:

1if"rt;! fi~dI f~ ~1.f·f~n~rw:jl1!!:' the ill~er~l U e'am'.!, OtIlhe U. 5<. !8.0,vemllr!~11t sewr1Ues It own~provlc:les the Incame needed to carry out iU d~tle! .•

Why do we h!:l~~ to use 111iKI1'I'~t.ary pot~cy to Pw¥~otl.ntl~. ~fQn~ Why can't m' Ipn!YlNi~ [rdl~UQIlI d~rocl. f p1adf!! Urni~ ~n

now rnt1cih W<lge~ arid III nlSe?

'Of!e~fl'5,w"r Is t:h~t. 1:t WO'!.!~dl be ~ry l1~rdl'O illl11)05e IPnoo COUi!tro[~ ,(lin 'I~eifl1l$ tNt ~im~t.

I 1'i'<lV>e to pay l1is,l\t;:or prices Jior~he 1:I;\ln~rn~S I import. If I 'can't charg~ hisher prr:.ces for thebalna.mttS, I, won't bi!i ,,,,ble to fmport themaiiil~r!e.,

Alw. price <lndl W<lS~ ,cot1ltrols are very moo ttl ,enforce becauSie' both bll:iyer. s .. · .. a. n .. d.se. tie"'. ~. (in tihe .12.' .. s.e 0. J p. " .. c.e, c. o.'.nti'O ... l~.J.' ,an.d 00 ..... th.emp. lO)'ei. J'S ,ai!1d warRerr. Un the case Oir wage CQ,flitrobi) may W"ishto violate them.

I don'tc:ar~ wIt~,rt: t:heS'QY~ffU1;(;el'lt s!l!ys. I'm ,oot f~ti!!e'Sted In conti nuln; !iIl!Y pract~oe unless I c<lin dha.rge lPaliei1~s more :th",t II djdi ~ar.t ye;l'r.

In arndl'~i[ln., dnalflges fn plices iiln!i!l W<L'ge1i pe;rJ!Drma very il'lllporta:rJ/~ rele in the 'IO'GJIlOfil'lY - servin!!! as signaLs to direct laoor and Q~h~r ~y~~. wh!!re U:U;!y !In;! ~tI~d"

Sti~pc5e,r>or !irX<llfIiIp.te, lliat t!Jle~e:'5 ,as!1o.r~ag~ of computer :prnfessioJl!ll.l!i, "RIeljmlnOlh;:'l~e' 5'horta!!l~, empl~rs, ,"""DuM ofhlr ihj!!l1eF pay

ttla1:l:IFB.ct J1IIIore people il1IW the ['i(!!I.dI.

IEM U tiI'Ieof!lI'Ipl~ we~n ·t>in.ow~d 1:0 ~Fe;; hl:Si1(ir riay, th~y wQ~Id'F1't ~ aib~e '~O get. the profess10f1als 'LheYlK'eC!l.

The 'l!O~. m!lJllen.H!<1.~ ~~. .H!.II!'IlI(il. <l!Sl.J«.'S.' qr Ifl.' ilta:liO~ ..• Tne best. known is ~he comt.mne.r price inde\l< (CPlh which measures tille plit:esof Item ... boo:Iil'lt by COnSl.lFllem; in metro,poUtMI .areas. Those 1tJe'ms UJi\!',er <Ii w~d'e n'lliJ~ of 'I!lPods !lind iSeNiCe-s - food, cl.mhin!l, housil1~"b"an5pDr1t<I;tian. re~lFea!l~on, li3JlIhdl)'

~ery~ces. and much more,

The (PlllalS il direct e'Hif'Cto.n th~ Uves of lmanlj ;ndiYidUi~h and gro~ps. For @.'I;arnpte, many empl.oYEhrs h'nk. ".,..age inor·~~s~~o hQ'l'l III1l!Eh ~ (PI SD~~ up.

To. IProduce tilie (PI data., tlhe U.S. Department of L<loor' keeP5 trat:k of chanse.5in 011 wide· v,[li1et~ or ~.o.n:5L!11mer prices. LaibDf IDeprurtmoot eliJl.plo~ visit n1illr'Iysto~ ea . ch 1Iil(!<llittl to Ci~k. on price moveme.rnts,.

"Core inflaUon" meMIJI'(lS (harl~e5 Intne ;eneral price l~vel with rood Ilnd en~r;y pr:ltt'S e:.:duded,and lliu.J5 provld~

<lJ mere ~;G(lIrate 'g<luge of continuini!! p:ri~e pressures.

~ny~cOl'lom~~ts, think that the. eensemer lrice Ind'ecx_ ~Wmil!!tes ~m::r'e'a~~ rn ~lheoost or l.i'o'lng, O~e re~SOn ·~~th<it whUe tile ,C!PII .accL.lrllt~ly me,i5Uf'eS :rmlce ~fiCre<ml'S" it, doe-mit f!Oil~y fHogni~e die improve.ments tha:t occur In 'ttlii1 quality of the thlng5 we buy.

Crlt~~ <l~Q point O~n th<!il the CPJ 1 that conS.u:rn·~·f$ d'l~!'Igl! their b~Yl!'l8: p~~wrn~

ove,r time. SpedUCilUy. cOm!sumers ~~~. or It:em~ with rap'[d prr.ce' riw~ ,aitdmore '!il(

tl1o:se j'~eiifl$ cwh~~ p:rloos hilv.e net ri$en rap .'1. Fo, eKOiiilllple,. du rJn!l years, When oil <inc! I!a~ prl<:es lise ~h a rpty" p.eo,ple 'find! W.[l,ys to. Gons.erve on tiI\e use o~ 'lIiIOs.e items .•

Wilh ~NIe~8Y prices, up ~ Ii'I'IIt.I!ctl. I c\lIn't se~. the O!!lr cl.')l'Idl:tlo!'l~n8 I!IS lew ,as. t u&e<Ci to.

ne accuracy w~th wh&chtiile CP~ Ilu~asu:re~lnflatton h .. ~ Of :s,jj!niffc<lJnt ef(\ec:t on tine budget Qf theret!etal gtl¥Ei'mmerd I, Thllt"s bec;aiJSe, certain be-nem5~._ 5L1ch as soci,,& security, are based on hoi!'\!' mum the ClP~ rses,

4.0% 3.5% 3,0% :t5% 20% 1ll% 1.0% o.§% tI,D~

~-:{IJ~# \~""~'"t.;jIl#75P"~~#

,r-
~
.r
r r- r
. r
,.
r- r
.
~
< If t!lIeCPI ~t~te~i!'lfl:,ilti:an" ~n ~ p~n~d 'e~mpUQ:1'I i!'l~rea~ ~ much ~dh '~~. and ti'r:e :red!!.~1 !8,oWl'rl1Ul'!efI,t Ioo~~t!!~ n:v~r:llJe as <l ~s~lt.

The' CPIi3Jl5Q aJH,e(ts Hie Irf!val rresi,r:le oilliieredE1ral budget. ifor eXlImple, tile lllersD!iIM exemption under rhf:! il'lcQme~ax: ;"'~h~ <rm.ounl o:rta)1·f~e 'ifilo;llll:l~

. -~, ~rS(tJlI to whic1'l.~ WamHy .~~ ~I'IUUtl!dr'!'lCfe.a$~S ~ach y~ar, bils~d OIl, theltlc~ fJ! t.I>e CPl.

1995

2000

2005

W.' .. hiltev.er. Us h1ilpe_rfec~. Han, the CPlremfrn: tile fiTlQ:st Iltln'ilmooiy used inflat[:on measure._ Whllt. drnl'~ tile CPI' leU u;s, aJxrult herw 'NeIll t!he United Slates ha§mana~

W O]llitrnlirmfLlrti!on? ~l'!Ith.@ 1970~ ,~ml e!!lrcly 'H~lm~. ,ili~ w~ ~w '~!lr1.1~rijpf1@tkm wa~ o:Fwn ~ry nlp~dl. 'e~ read'r~"g doubleo·dlg1it al"ll'lual ,aws. but~

'HtW~ ...----------------,

t'M~o% . ---------------

12,p!)%, 4- ·-------------1 t-

~.o:o-'% *-----

,-

10,,00%

211

, • .dunirl!! 11IlQ:St of the last twa, decade'S, we"wi; h!ld. lfI!Iuct'I '&Jiea~er ~~!2,es!>in ~n!ll il1!ft!lli.lo!!l subdu@(jl,

2.2

"The Story of Inflation" uses everyday language and l'ive1y liustratiQl)s to e>lplain:

how Inflation is defil:1ed,

• what causesinnation,

• the effects of tnflation on IndlvtthJ.fds and thEl: economy,

• how to prevent Inflation.

Fa mere Infonnatiall1 about N'ew 'York Fed eduQ'llio ' pr0'9lC1ms,loIIisit: www.flcwyorkfed.org/edu@tion

Tosc!hed'Hle a tour, go tQ: 'INWW.neWVD i1ded.ofQ/ab outthefedJ ny_tours.h:tml

Fede .. a 'Reserve Bank of New York Public: A Hal rsDepartmenrt

33 Ube,rty Street

New "{,,u'k, NY 1Q(l45

(212'~ 72(J.;B·1.34

NOT fOR RESALE

FOI free elllS'- es.visit: www.nI)Wtjorkfed.o rglppbl1~at:ions

2010