The Rise in Inflation: The Bite Inflation Effect

The Rise in Inflation: The Bite Inflation Effect

The term "bite inflation" has been making headlines recently, especially with the release of new data on inflation rates. According to the Bureau of Economic Analysis, the Personal Consumption Expenditures (PCE) price index rose by 3.3 percent in July compared to the same month last year. But what does this mean for the average American? Let's delve into the details.

What Is the PCE Price Index?

The PCE price index is a metric used by economists and the Federal Reserve to gauge inflation. It measures the average change in prices paid by consumers for goods and services, including healthcare costs paid by employers and spending by non-profits. The Federal Reserve uses this index to set its inflation target, which is currently at two percent.

The Bite Inflation Effect

The term "bite inflation" has been coined to describe the rising inflation rates under the Biden Administration. The 3.3 percent increase in the PCE index in July is the first acceleration since April, following a three percent increase in June. This suggests that the Federal Reserve's efforts to control inflation are facing challenges.

Impact on Everyday Americans

Rising inflation means that the purchasing power of your dollar is decreasing. For families who are already struggling financially, perhaps due to layoffs or falling behind on payments, this can exacerbate existing challenges. Interestingly, investors seemed somewhat relieved that the inflation rate did not rise more sharply, as indicated by futures linked to major indexes rising. However, the road to achieving the Federal Reserve's two percent inflation target appears to be long and fraught with obstacles.

The rise in the PCE price index and the coined term "bite inflation" indicate that inflation remains a significant concern for policymakers and the public alike.

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