ts the economy because when regulating interest rates, it will take a long time to feel the full effects.Another way of looking at how the rate of inflation is affecting the economy is in terms of the earnings of many corporations. When analysts predict the estimates for future earnings, the rate of inflation is figured into their calculations. However in the case of April of last year, the inflation rate as seen by the CPI increased unexpectedly. Therefore the earnings of many companies were overestimated, and investors may have overpaid for the price of a particular share of stock. Conversely the bond market yields were shown as increasing to a 12 month high. This is accounted by the yield rate being correlated to the rate of inflation in the economy. As the rate of inflation increases, so will the bond yield rate to compensate for inflation. In this case it makes the bond market much more attractive to investors considering the long-term yields may be higher than other forms of investment. It is also a benefit for the Federal Reserve in the sense that as investors choose to buy bonds, it will remove some of the money supply from the economy.Overall the Consumer Price Index is an important tool provided by the Bureau of Labor Statistics that the government looks at closely to determine the growth of the economy and value of money because of inflation. When there is an unexpected increase in this rate, the results trickle down to many outlets of the economy such as the stock and bond markets, which can be clearly seen by the sudden stock market fluctuation. In the last year the Federal Reserve began to regulate the economy by increasing interest rates because of the fear of rising inflation. Time will tell the effectiveness of these measures....
