Low Demand, Low Inflation

May 16th, 2013 at 1:15 pm

Running off to an EPI event to share my take on Bob Kuttner’s great new book, Debtor’s Prison (I’ll post comments later), but first, check out the tanking rate of inflation, as per the BLS this AM.  The index has actually declined over the past two months, and prices are up only 1.1% over the past year.  As the figure reveals, with the exception of February, yr-over-yr price growth in overall inflation has mostly been decelerating since late last year.

Falling energy costs drove the slide over the last few months–core inflation, which exlcudes volitile food and energy, has been declerating more slowly.  Also, gas prices have reversed course over the last week or so.

But the message here is that the underlying economy remains considerably weaker than you’d know about if you just tracked the stock market and corporate profits.  Low inflation at a time like this also slows down the deleverging process regarding household debt, since higher prices erode nominal debt burdens.  At any rate, I’m sure the Fed is watching and I suspect and hope that if this continues, they’ll push out their plans for unwinding their monetary stimulus.


Source: BLS

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3 comments in reply to "Low Demand, Low Inflation"

  1. tyler healey says:

    QE and ZIRP remove interest income from the economy, so how are they stimulatory?

    • noname says:

      How can QE be the remedy given that it is clearly part of the cause ? Please rethink what QE is (hint see post above )

  2. Tom in MN says:

    Here in the upper Midwest I paid $3.85 for gas three days ago and yesterday I saw $4.29 prices, it’s probably more today. Several refineries are such down, but you surely don’t want economic policy to consider this, so another reason to use core CPI and not the headline value. Of course this will also decrease overall demand, so if anything will act to reduce core inflation.