**Bootcamp: UTOR-VIRT-DATA-PT-10-2022-U-LOLC-MTTH **
**Project-01: Inflation and its effects **
Team Number: 07
**Team Members: **
- Payal Dhillon (Alisha)
- Yonghao Liu
- Termeh Mohebbie 4 . Md Mohsin Rana
**Team Mentor: ** Laurel Lobo Project details:
**Topic of the Project **
We have analysis all the data to figure out how the inflation is This analysis will help to find out how today’s inflation rate is impacting several aspects of everyday life. This includes real estate, grocery prices, purchasing habit, labor market, minimum and median wages.
**Analyzed data to answer below question **
- How does inflation affect purchasing habits?
- How do grocery prices and minimum wages relate to Inflation?
- How does inflation affect labor market?
- How does inflation affect real estate market?
**Assigned Task to the Team member **
- How does inflation affect purchasing habits - Payal Dhillon (Alisha)
- How do grocery prices and minimum wages relate to Inflation- Yonghao Liu
- How does inflation affect labor market - Termeh Mohebbie
- How does inflation affect real estate market - Md Mohsin Rana
**Resources and link: **
We have used below site to get the dataset and all datasets are uploaded in the Resources folder
- Consumer Price Index US All Commodities | Kaggle
- State of Working America Data Library (epi.org)
- The value of the federal minimum wage is at its lowest point in 66 years | Economic Policy Institute (epi.org)
- USA CPI Inflation from 1913-2022 | Kaggle
- https://tradingeconomics.com/united-states/inflation-cpi
- https://www.in2013dollars.com/current-inflation-rate
- https://ca.investing.com/economic-calendar/interest-rate-decision-168
**Observations and conclusions **
For Question No-1 - How does inflation affect purchasing habits
• Personal Income in the United States averaged 0.53% from 2018 until 2022, reaching an all-time high of 20.7% in March of 2021 and recorded a decrease of -13.1% in April of 2021, along with personal savings. • Looking at the line graph it has shown that there was a strongest increase reading between the years of 2020 and October of 2021, primarily reflecting due to increases in compensation and government social benefits due to the covid- 19 pandemic. The increase in compensation was led by private wages and salaries. Within private wages and salaries, both services-producing industries and goods-producing industries increased. The increase in government social benefits reflected increases in "other" benefits, primarily reflecting one-time refundable tax credits issued by states. • Personal Savings and Personal Income seem to be running next to each other as of the years of 2020- 2021 October as the US was dealing with the lock downs due to the pandemic as per the Personal Spending was low during that time frame. • As shown in the graph, Personal spending in the US increased 0.8% October of 2022, following a 0.6% rise in September and matching market forecasts helped by a tight labour market and high savings, despite rising prices and borrowing costs. Within services, the largest positive contributor was spending on food services and accommodations. • Personal consumption expenditures (PCE) is the primary measure of consumer spending on goods and services in the U.S. economy minus personal income, therefore PCE shows how much of the income earned by households is being spent on current consumption as opposed to how much is being saved for future consumption. • Collected data shows that due to the strong inflationary pressure and broad price increases across the economy, mainly in the services sectors have caused consumers spend more than what they have been saving. • Prices that were seen increasing was for shelter (0.5%), airline fares (18.6%), and new vehicles (1.1%), prices also increased for medical care (0.4%), recreation (0.4%), and for household furnishings and operations. • As per the personal saving rate as a share of disposable income in the United States decreased to 2.3% in October of 2022 which is now below 0.4%, this has been the lowest since the great recession in 2013-2014 as the high inflation rate and rising borrowing costs are eating out the cushion Americans accumulated during the COVID-19 pandemic.
For Question No-2 - How do grocery prices and minimum wages relate to Inflation
After analyzing the datasets, we have made a line graph Inflation rate Vs Food Relation rate and its shows the trend of inflation and food inflation. From the graph, you can see the trend of inflation and food inflation is generally following each other except 2014 to 2016.
The bar graph that we made is nice for comparison for inflation in general and food inflation. From this chart, you can see two inflations following each other except 2014,2016 and 2020. I assume the phenomenon is due to food inflation is more sensitive to monetary policy issued by central bank. Since food is basic needs and the demand won't decrease even if the money depreciate.
The Plot that we made to compare Real Minimum wages vs Nominal Minimum wages shows the nominal minimum wage doesn't change with the inflation, but the blue line shows the money depreciate due to the inflation. You can easily see how the purchasing power of minimum wage decreased with inflation.
The bar chart for Real Minimum wages Vs Food Inflation shows how food inflation related with real minimum wage. You can see the wages decrease faster when the food inflation is higher and vice versa. The relationship between food inflation and real minimum wage is closer than the relationship between food inflation and inflation in general. How interesting is that!
**For Question No-3 - How does inflation affect labor market **
The correlation matrix that we made, if we take a closer look to inflation and inflation rate, we can see it's increasing with year which is expected, then we can understand that it affects wage growth more than wage, also it's visible that the most positively correlated indicator with inflation is CPI_Core_Core ( which tracks changes in prices that consumers pay for a basket of goods excluding cost of food, shelter, energy, and used cars and trucks ), and after that is Employment_Cost_Index. For the most negatively correlated indicator we can clearly see Part_Time_Employment, Unemployment_Rate and also Bankruptcies. So we can do some further analysis on the effects of inflation on CPI and core core CPI, Employment costs, Employment/Unemployment Rates, Full-time/Part-time Employment and Wage Growth. This chart also shows us that inflation affects the job vacancies, job offers, job quits and Labor costs.
In the graph of Unemployment rate vs CPI Core , we can see the inverse correlation between inflation—as measured by the rate of change of the CPI—and unemployment reasserts itself, only to break down at times. In 2001, the mild recession as a result of 9/11 pushed unemployment higher to roughly 6% while inflation fell below 2.5%. In the mid-2000s, as unemployment fell, inflation was steady around 1% to 2.5%. During the Great Recession, the rate of change of the CPI fell dramatically as unemployment soared to almost 10%. From 2012 to 2015, we can see that the inverse correlation broke down where inflation and unemployment moved in tandem. From 2016 to 2019, unemployment steadily declined to 50-year lows (before the onset of COVID-19 at the end of 2019), while inflation remained around 2%. In other words, the inverse correlation between the two indicators wasn't as strong as it was in prior years. In the year 2020, unemployment soared to almost 15% (in April 2020) as a result of the economic impacts of the global pandemic caused by COVID-19, but decreased steadily through January 2021. In January 2021, the unemployment rate fell by 0.4 percentage points, to 6.3%. Although this measure is lower than the high reached in April 2020, it remains well above pre-pandemic levels (3.5%) in February 2020. During this time, inflation remained relatively unaffected, although prices began to rise sharply starting in February of 2021. These price rises were primarily due to the simultaneous supply shocks to the global economy, although likely increased as a result of the shortage of labor in essential industries.
The plot we made shows the rate of change of the inflation and unemployment rates in the 1960s. In this chart we can see that if unemployment rate lowers from 6% to 5%, prices would not rise by much but if it goes to 4% or less, then inflation rate would rise from 1% to 3% and above. However, in 1970s unlike the data from the 1960s, there's no clear evidence of the inverse relationship between unemployment and inflation. The 1970s were a period of both high inflation and high unemployment in the U.S. due to two massive oil supply shocks. The first oil shock was from the 1973 embargo by Middle East energy producers that caused crude oil prices to quadruple in about a year. The second oil shock occurred when the Shah of Iran was overthrown in a revolution and the loss of output from Iran caused crude oil prices to double between 1979 and 1980. This development led to both high unemployment and high inflation. The boom years of the 1990s were a time of low inflation and low unemployment. There can be multiple reasons for this positive confluence of circumstances such as: *The global competition that kept a lid on price increases by U.S. producers, *Reduced expectations of future inflation as tight monetary policies had led to declining inflation for more than a decade, *Productivity improvements due to the large-scale adoption of technology, *Demographic changes in the labor force, with more aging baby boomers and fewer teens working.
**For Question No 4 -How does inflation affect real estate market **
Government increase the interest rate to flight the increased inflation rate After analyzing the data we have seen the same is reflecting in the bar chart. We have also seen that 3 to 5% inflation rate reconsidered under contorted and no adjustment of interest rate for that period.
During the time of lockdown and covid the interest rate was reduced to boost the economy
The House Price Index (HPI) is a broad measure of the movement of single-family house prices in the United States. If the mortgage rate is higher there will be a decline of house price/index and vice versa We have seen the same trend of the index from 2000 to 2022
The buy-to-rent ratio shows whether buying or renting would be best for a particular property in a given market. The Higher the Ratio is it’s better to rent than Buy After Analyzing the data we have seen the relation with them as when the mortgage rate is high the Buy to Rent ratio also gone up