What a difference falling gas prices make! By falling as low as $2.02 in January, gas prices helped deliver a -0.7% CPI reading for January. The big decline since the end of last summer means that YoY consumer prices have declined by -0.2%:
This is the first deflation since collapsing gas prices did the same thing at the end of 2008 during the Great Recession.
And this kind of deflation is good. Remember the awful retail sales number we had a couple of weeks ago? (red in the graph below) Only -0.1% in real terms(blue), considerably less of a decline than we saw in either 2013 or early 2014:
Even more important, here is what it means to real wage growth. This is the YoY% change in real average wages for the last 2 years:
Back above 2%, to +2.2%.
And here is the entire 50 year history of real average wages:
Real average wages are more than 1% higher than at any time in the last 35 years, including during this recovery.
Two very big caveats, of course:
- we are still below almost the entirety of the 1970s, and more importantly
- nominal wage increases are still miserly (unless Wal-Mart has just kicked off a wage war). I would really prefer to see substantial wage growth driven by actual increases in pay.
