The customer price index doesn’t seem to have moved much in a when as shown in records just lately released. For months on end, prices of goods and services have remained essentially flat. It does not require a little instant cash to purchase the normal food. For a long time, the price index has been at about zero for the part and parcel for a federal rate of interest. An interest rate that holds steady at a low threshold is practically the Fifth Horseman of the Apocalypse, as it generally signals deflation.
Low customer rates to determine everywhere
The Department of Commerce makes sure to know how much goods and services are costing, and the rise and fall of that price. This is called the Consumer Price Index. The newest York Times reports that a .3 percent rise happened for the CPI in both July and August. The rise was attributed to prices of food and energy rising. Those two good are all that have changed. Everything else in customer prices has stayed put. Cost of goods and services is tied to demand, and with unemployment as high as it is, hardly anyone is willing to spend much. It certainly means much less payday money for retailers.
Cannot beat the low interest rates
For about four months, federal interest rates have been at about zero when consumer prices don’t change. The interest rate set by the Federal Reserve is the interest rate charged to banks when they borrow money or lend short term loans to other banks. Loan credit is the purpose of these loans. More are borrowing with such low rates of interest. There is a catch. Numerous banks do not want to lend. That means the economic activity is no longer happening. When that happens, money starts to lose value, as hardly any of the money supply is getting used. That is the definition of the word deflation.
Federal rates being so low is hurting
If deflation sets in, value of goods will go down, but rates will go up in order to keep suppliers in business. However, that will not be accompanied by a rise in wages.
Additional reading
NY Times
nytimes.com/2010/09/18/business/economy/18econ.html?src=busln
