Posts Tagged ‘cpi’

Deflation

17 June 2009

For all the talking heads’ bloviating about the massive inflation to come from current Fed policies and the spending stimulus, as well as the media’s eagerness to pronounce the recession over, you can be forgiven for not noticing that deflation has not exactly gone away.  The Bureau of Labor Statistics announced yesterday that over the past 12 months wholesale prices dropped 5 percent and today that over the same span consumer prices dropped 1.3%; the respective declines were the largest since 1949 and 1950.

I said a few months ago that I was not particularly worried about deflation, and I’m still not, as it seems mild by historical standards and because expansionary Fed policies are making sure that money-stock growth is strong.  But an awful lot of people have assumed away the recession and are now wringing their hands about the threat of inflation, and these data suggest both impulses are premature.*

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CPI: Energy fools the magician

15 April 2009

Today’s release of the March CPI figures brings the news that we had our first 12-month deflation, of 0.4%, since 1955.  Yikes, right?

Not really.  The deflation came mostly from lower energy prices.  The “core” inflation rate, which excludes food and energy prices, was 1.8%.

Likewise, the modest price dip of the past month (0.1% each month) was also driven by falling energy costs.   Non-energy prices rose slightly.

What is the source of these falling energy prices?  Some of it seems to be a function of the sagging economy (poorer people drive less), but I expect there’s favorable supply shock in there somewhere.  And I have to think it nets out to a favorable supply shock for consumers as a whole.