The Ongoing Dramatic Inflation Rate Increase

Between December 2008 and August 2009, the seasonally unadjusted U.S. consumer price index increased 2.7% or 4% at an annualized rate. Yet the yearly change was still -1.5%, due to a drop in the CPI of more than 4% between August 2008 and December 2008. But that number for the 12 month change was up from -2.1% in July and as the drop late last year is removed from the 12 month comparison during the coming 4 months, consumer price inflation will return to levels way above zero, and likely also above the official or unofficial 2% target pursued by most central banks.

A similar trend can be seen in the euro area, where the inflation rate rose from -0.7% in July to -0.2% in August. This trend will likely also be seen in other countries, though less dramatically (or in some cases not at all) as they for example in the cases of Sweden and Poland saw their currencies plummet in value late last year, but has seen it rise dramatically in value this year. Also, some countries with fixed exchange rates and deep economic crisis, most notably the Baltic countries, are also likely to see continued relative disinflation, limiting or preventing any absolute reinflation.