The annual rate of inflation across developed economies rose for the first time in a year this August. The inflation rise can be credited to sharp increases in energy prices. Stimulus measures by international banks were considered in fear of a global economic slowdown, but this positive development may lead the central banks away from additional stimulus measures as long as the inflation rise is sustained. Refraining from a bailout is ideal because it does not guarantee long term economic growth. However, economists have predicted that inflation might be higher in these next few months solely because of the price hike in energy and will eventually level out within by the end of the year.
A worldwide increase in inflation means prices are rising across the board. In the United States, gasoline prices have continued to climb despite a decrease in crude oil prices. The European Union is also seeing an increase in the energy market. Eurostat, the European Union's statistic agency, says producer prices rose 0.9% in August from July due to energy cost. The last time prices rose at a faster rate was in January 2011. Consumer confidence is also on the rise, encouraging markets to raise their prices because they know their consumers are willing to foot the bill.
The CPI which increased 0.6% on a seasonally adjusted basis in August indicated an increase in inflation. Since about 80% of that increase came from the gasoline index, it makes sense that energy is the main cause of this increase.
A higher inflation rate may also help lower unemployment. As the dollar regains its strength and consumer confidence continues to rise, consumers will spend more money which will cause manufacturers to create more supply and expand their companies. This will in turn create more jobs. Many reports say approximately 8.8 million jobs were lost when the economy started to recede. This number does not encompass the amount of people that were already unemployed at the time (5%). In order to return to full employment the United States would have to add more than 12.5 million jobs to bring the employment rate from 8.1% back to 5% as it was in 2006.
A higher inflation rate may also help lower unemployment. As the dollar regains its strength and consumer confidence continues to rise, consumers will spend more money which will cause manufacturers to create more supply and expand their companies. This will in turn create more jobs. Many reports say approximately 8.8 million jobs were lost when the economy started to recede. This number does not encompass the amount of people that were already unemployed at the time (5%). In order to return to full employment the United States would have to add more than 12.5 million jobs to bring the employment rate from 8.1% back to 5% as it was in 2006.
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