October’s CPI Research Notes

by Jim Baird on November 16, 2011

CPI retreats, a mild boost for consumers

Today’s CPI report is further evidence that the inflationary concerns that were so prevalent earlier in the year continue to recede into the background.

While a positive development in some regards, the continued decline in inflationary pressures is symptomatic of sub-par demand.  With the risk of recession still heightened, further deterioration in the pace of economic growth or an outright recession is likely to result in further disinflation and even the specter of deflation.

Today’s report helps to further clear the way for the Fed to engage in further policy easing should the economy soften further from here.

Conversely, there is good news for consumers in today’s report.  A reduction in inflationary pressures could provide a very mild boost to household pocketbooks heading into the holiday shopping season.  Nonetheless, the other issues that have conspired to keep consumer confidence in check haven’t improved and those issues will weight considerably on consumer psyches.

High joblessness, the depressed housing market, and stagnant income growth are all longer-term headwinds to the collective mood of U.S. consumers that will not be easily solved and will require time to heal.

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