Friday, July 16, 2004

It looks like we can all calm down now on the inflation front.
Consumer prices rose a modest 0.3 percent in June, half the size of the previous month's advance and fresh evidence that inflation poses no immediate threat to the economy.

The over-the-month increase in the Consumer Price Index -- the government's most closely watched inflation barometer -- followed a 0.6 percent spike in May, reflecting a big jump in energy and food costs, the Labor Department reported Friday. In June, energy and food costs went up, but not by nearly as much. That helped to moderate overall consumer prices and brought a little bit of relief to Americans who have been forced to dig deeper into their pockets to fill up their gasoline tanks and buy groceries.

Excluding energy and foods costs, ``core'' prices nudged up by just 0.1 percent in June, down from a 0.2 percent rise in May and the smallest increase since December 2003. From an economic point of view, that deceleration suggested prices of other goods and services were relatively stable.
As the General has been reporting all week, prices are down all over the economy: agricultural commodity prices, import prices, export prices, producer prices.  Now consumer prices are finally beginning to catch up.  The big changes are in food and energy costs.  Food was up just 0.2% on the month, and food at home only 0.1%.  If it wasn't for dairy and booze there would have been almost no food/beverage inflation at all.  Energy was up 2.6%, remaining the only real driver of inflation now.  But that was down from a big 4.6% rise in May.  If NYMEX crude prices stay below $40/barrel (a big if, I grant you), we may be back to the days of 1% inflation in no time.
 
Annual core inflation now stands at a meager 1.9%.  Granted that's a lot higher than the 1.1% of last winter, but a far cry from the mid-2%s of Clinton's second term, the high-2%s and low-3%s of his first term, or the 4%s and 5%s of Bush I.
 
And besides, it's about time we get back to talking about deflation anyway.

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