August Consumer Price Index

Inflation, disinflation, and deflation: the August Consumer Price Index (CPI) from the Bureau of Labor Statistics had them all.  On a year-over-year basis, this price index is 1.7 percent higher (inflation).  However, this is less than the 12-month look back in July when the tally was 2.0 percent (disinflation). Finally, the month-over-month change was -0.2 percent (deflation).

Headline CPI was heavily influenced by lower energy costs in the period, and food prices hardly offset this downward pressure.  Energy prices dropped 2.6 percent in August.  Gasoline led the fall, collapsing 4.1 percent!  Food inflation decelerated to +0.2 percent in the period versus a +0.4 percent jump in July.  August is the first month since April 2013 that the headline figure fell.

It has been even longer since the core tally was not positive.  Removing food and energy price changes because they can be so volatile gives us the “core” measure.  This steadier measure of price movements did not change in August.  Prior to this latest release, core CPI has been higher in each month since October 2010.

One way of describing inflation is to say that there are too many dollars chasing too few goods.  America’s central bank has been creating dollars out of thin air for quite some time, so there is not a dearth of dollars in our economy.  But inflation data found in indicators like the CPI and the Producer Price Index make it hard to argue that these dollars are doing much chasing.  Price increases have been rather measured despite the Federal Reserve’s explicit desire for greater than normal upward cost pressures.  If the recent trend continues, it will be interesting to see how the central bank reacts to the recent disinflation in the months ahead, especially as the planners consider removing experimental policies like quantitative easing and zero interest rates for banks needing to borrow overnight.  Atlas thinks it will, at the very least, have to keep the overnight rate at nil longer than most professional projections presume.     (by C. Cox)