- by New Deal democrat
The good news and the bad news are exactly the same. April CPI came in at -0.1% NSA. YoY inflation is down slightly to 2.2%. Core inflation is virtually non-existent at 0.9%.
The good news is that inflation looks very likely to retreat to a level less than wage growth in the next couple of months (wage growth averaging about 1.5% for the last year. In June of 2009, because of Oil prices, NSA inflation increased 0.7%. Unless there is a rapid and complete turnaround in the price of Oil (down to about $68.50/barrel as I type this), we are going to see a further, significant downdraft of prices in the next month. This will be good for consumers.
The bad news is that this raises the risk of a repeat episode of deflation. Outright deflation will probably occur only if there is a significant decrease in demand, and that means consumer retrenchment.
In fact, since December of last year, the bond market has been primarily driven by fear of deflation, rather than inflationary expansion. You may recall that deflation was my caution about the second half of 2010, when I posted my outlook back in January. I will post the graphs on this later in a separate post.