Another inflation post
So why is general inflation so low when energy prices are so high? I suggested in passing on Tuesday that
there aint nothin' gonna stop us 'Mericans from buyin' our gas. Those skyrocketing gas prices might stop us from buying everything else, however.It seems that Wal-Mart has the same inkling as well as a couple of corporate economists.
"Unlike the past when oil had a huge inflationary impact, this time its inflationary impact is very small and it may have a somewhat deflationary impact," [Nariman Behravesh, chief global economist at Global Insight] said.Consider the below chart of annual CPI and PPI inflation rates on consumer goods since 1997 (the East Asian financial crisis). Until 2003, wholesale and retail inflation on such products was roughly the same and moved in tandem. Throughout 2003, however, producer inflation far outstripped consumer inflation as the CPI on commodities flirted with deflation. Over the last 18 months, CPI and PPI have again moved together, but PPI continues to exceed CPI, especially during disinflationary periods. The conclusion? Since early 2003 price pressures on producers of finished goods has been much higher than on their consumers.
Moreover, from January 2003 to June 2005, real wages and salaries (SA, deflated by the PCE price index) have risen 7.9% and real disposable personal income is up 7.8% while real consumption has risen 9.4% and real consumer goods (incl. autos) imports (SA, again using the PCE deflator) are up a whopping 16.1%. Debt and dissaving -- not income -- has kept US consumption high over the past years, while cheap goods imports and the overall 'Wal-Mart effect' have helped keep core inflation well in check.
I wonder, in fact, if contined Fed tightening combined with a drop in oil prices -- say to the low $50s/barrel -- might shake what little general inflation exists right now completely out of the economy.