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BUT WILL IT HOLD?

Inflationary pressure eased in November as consumer prices fell by 0.3 percent.  Last month’s drop – driven by lower energy prices – was the first decline in six months.  Strip out these lower energy costs, though, and consumer prices actually rose by 0.1 percent while the cost of food rose by 0.2 percent.

Over the last twelve months, inflation stands at 1.9 percent – which is less than many (including us) expected given the extent of the Federal Reserve’s exceedingly loose monetary policy.  We’ll check in again next month when the official year-to-year data for 2012 is released, but for now it looks as though inflation will settle in at right around 2 percent for the year.

According to the U.S Bureau of Labor Statistics, the year-to-year inflation rate for the previous five years is as follows …

January 2012 – 2.93 percent
January 2011 – 1.63 percent
January 2010 – 2.63 percent
January 2009 – 0.03 percent
January 2008 – 4.28 percent

As part of the ongoing negotiations related to the “fiscal cliff,” the federal government is considering using a new method of calculating inflation – one officials say provides a more realistic picture of price increases and consumer behavior.  The shift would net the government an additional $236 billion over the coming decade.

We have no problem reducing inflation-adjusted annual increases for government beneficiaries.  As far as we’re concerned, that’s one of several needed steps when it comes to reforming our nation’s unsustainable entitlement spending.

We have a major problem, though, with applying these “chained’ inflation percentages to income tax brackets.

A modest tax hike is still a tax hike, people …

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