December’s CPI Research Notes

by Jim Baird on January 19, 2012

Inflation pressures continue to moderate

The Consumer Price Index (CPI) was unchanged in December, slightly better than anticipated, while the one-year change in CPI was 3.0%, continuing its steep decline since September.                                                    

Inflation pressures have moderated in recent months as retailers were forced to slash prices to compete for consumer dollars during the critical holiday shopping season.

In addition, the increasingly apparent slowdown in the global economy has contributed to lower expectations for commodity demand and an easing in prices in recent months. 

Despite the recent improvement in the labor markets, there is still considerable slack.  Wage growth remains stagnant, and there is little reason to believe that upward pressure on wages will force businesses to aggressively pass those higher costs along to the consumer any time soon.

This is good news for the economy and for the Federal Reserve, providing central bankers with plenty of leeway to continue to take whatever steps deemed necessary to provide further stimulus to the economy.

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