May’s CPI Research Notes

by Jim Baird on June 17, 2010

Up to this point, the US economy has been the beneficiary of an “inflation-less” recovery.  While many market observers continue to point to the risk of inflation down the road, there is still sufficient slack in the economy to keep price levels from moving higher to any concerning degree. 

The core inflation rate remains uncomfortably low; the economy may be expanding, but at a pace that isn’t inspiring.   Couple that tepid domestic recovery with diminishing expectations for global growth, and any concerns about upward price pressure for U.S. consumers in the near term are dissipating.

While fears of high inflation have turned to fears of deflation, the core inflation number seems to have stabilized for now, albeit at a rate that is extremely low.

Today’s weaker-than-anticipated initial jobless claims number demonstrates that the economy just continues to struggle to get over the hump and move toward a more constructive environment for employment expansion, income growth, and improving sentiment.

Muted inflation, and the risk of deflation, seems likely to provide the Fed continued incentive to maintain its accommodative stance. 

Headline inflation fell slightly by 0.2% during May, in line with consensus expectations.  The year-over-year result at 2.0% marks the second consecutive month of decreases.  Core inflation was also in line with estimates, rising 0.1% during the month and remaining flat at 0.9% year-over-year.

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