Thursday, May 20, 2010

Changing Inflation

The Bureau of Labor Statistics released its monthly consumer price index yesterday, and prices actually fell by 0.1 percent in April. Core inflation, though, remained steady in April, leaving the 12-month inflation rate at 0.9 percent, the lowest it's been since 1966.

The broader figure would seem to suggest we're in some danger of deflation, but it's probably better in some respects to focus on the core inflation number. Why? The big difference between the two is that core inflation strips out energy costs, which are much more volatile, often for reasons that have nothing to do with larger economic issues. For instance, the biggest factor in April's downward CPI movement was that the cost of gasoline dropped by 2.4 percent in a single month. That was probably just a natural result of overheated gasoline prices; they've risen 38 percent in the past year.

Of course, we still have to pay for gas, so if you're concerned about how the inflation rate affects your pocketbook, you should keep an eye on the consumer price index. For the effects on the larger economy, and for where inflation is really headed, you probably want core inflation.


No comments:

Post a Comment