Access the current inflation rate as measured by the CPI at

Access the current inflation rate (as measured by the CPI) at the Bureau of Labor Statistics website: http://www.bls.gov/ Based on this inflation rate, explain three different ways that this rate will impact different parties in the U.S. economy. Be specific in your answer.

Solution

Inflation rate effects

1. Government decisions on tax rates: If the inflation rate is increasing, then the government tend to increases taxes so as to reduce the disposable income or can increase the benefits of savings.

2. Fed decisions on interest rates: If the inflation rate is increasing, then the interest rates are increased so as to suck the money out of the system.

3. Common man and private investment options: If the inflation rate is increasing, then they tend to move out of the traditional investment options and tend to look out for investments which give returns at par with inflation.