New Inflation Data


Yesterday’s PPI release and today’s CPI release from the BLS suggest that the growth in inflation (excluding the effects of oil prices) may already be tapering off in the economy.  Prices of producer fell in June thanks to lower energy prices, while consumers continued seeing higher prices for both energy and non-energy items. 


The slightly surprising thing is that in both cases the inflation rates for goods other than food and energy products showed signs of slowing.  The 12-month change in consumer prices through June 2004 was just under 2.0%, which is where it has been for the past few months.  Here’s the chart: 



This is both good and bad.  It’s good if it gives real earnings a chance to rise (which happens if earnings rise faster than prices).  Of course, that’s a big if.  But it may be a bad sign if it is a symptom of an economy that is losing steam, as yesterday’s report on industrial production may have also suggested.  Personally, I would like to see inflation rise a bit more – not because I like inflation, but because that would be a symptom of a strong economy that can generate strong and sustained job growth.  But of course achieving that requires some good macroeconomic management.  Which is something that the US currently sorely lacks.