Economics

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.3 percent in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 1.5 percent before seasonal adjustment.

Increases in the shelter and gasoline indexes were the main causes of the rise in the all items index. The gasoline index rose 5.8 percent in September and accounted for more than half of the all items increase. The shelter index increased 0.4 percent, its largest increase since May.

Since the end of World War II, the United States has experienced almost continuous inflation— the general rise in the price of goods and services. It would be difficult to find a similar period in American history before that war. Indeed, prior to World War II, the United States often experienced long periods of deflation. It is worth noting that the Consumer Price Index (CPI) in 1941 was virtually at the same level as in 1807.

Imagine that you are the president of Blue Skies Airlines, Inc. and you have decided that Blue Skies should buy a new Boeing 777. The plane will cost $125 million and change. There is one small problem though. Blue Skies only has a few million dollars in its bank account, and those funds are needed to pay fuel bills and the salaries of its employees.

When you mention the word "investment" most people think of Wall Street and the stock market, not capital investment in new plant and equipment by firms. These are two distinct uses of the same word. When someone buys 100 shares of Nike Corporation they are making a financial investment. When Nike Corp. builds a new factory or warehouse, it is making a capital investment.

We have already mentioned bonds, and that they are marketable securities that are purchased by financial intermediaries like mutual funds and pension funds as well as by individuals. We are all aware of U.S. Government bonds, but we also know that you cannot buy stock in Uncle Sam! Clearly, bonds must be different from stocks, though both are investments. Now let’s be specific about what a bond is and how the bond market works.

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