Current data were released that indicated that the consumer price index has barely moved for a long time. Prices have not changed much at all on goods and services for months. This means they are essentially flat prices. It doesn’t require a little instant cash to buy the normal food. Part and parcel to the price index has been a near zero federal rate of interest. If interest rates stay at steady, low rates for too long, there may be more concern of deflation.
Low consumer prices
The Department of Commerce makes sure to know how much goods and services are costing, and also the rise and fall of that price. This is called the Consumer Price Index. August and July showed rises in the CPI, reports the brand new York Times. Both months raised by .3 percent. This was considered to be happening because food and energy costs were going up. Aside from those two goods, consumer prices have barely changed at all. Cost of goods and services is tied to demand, and with joblessness as high as it is, hardly everyone is willing to spend much. Retailers are getting less payday cash for sure.
Interest rates at rock bottom
For about four months, federal rates of interest have been at about zero while consumer prices do not change. Banks are required to abide by the rate of interest the Federal Reserve set. Banks have to use the rate when lending to other banks or borrowing. The majority of the loans are used for one thing. This thing is loan credit. More are borrowing with such low interest rates. There is one thing to consider. Numerous banks do not want to lend. That means the economic activity is no longer happening. The value of cash goes down this way. This is because money just is not being used. That is called deflation.
Low federal rates hurting even more
If deflation sets in, value of goods will go down, however prices will go up in order to keep suppliers in business. Wages will not go up with this, sadly.
Additional reading
NY Times
nytimes.com/2010/09/18/business/economy/18econ.html?src=busln
