On Inflation: No Worries, But Keep an Eye on the Data

By at 10 May, 2019, 11:34 am

by Raymond J. Keating-

There are a couple of problems with watching monthly inflation numbers, such as those included in the latest Consumer Price Index report from the U.S. Bureau of Labor Statistics.

First, you’re looking in the rearview mirror. Even the latest CPI inflation data is yesterday’s news. Small business owners, investors, borrowers, lenders, etc. are trying to figure out what’s coming on the inflation front. Only to the extent that one might see a trend in the CPI data that could point to what lies ahead does such data have value in market decisions being made today and tomorrow.

Second, in trying to detect a trend, it must be noted that the numbers from month to month can be very volatile.

So, what’s in the latest CPI data?

The April CPI increased by 0.3 percent. That came after a 0.4 percent increase in March. If those types of numbers held for a half-year or more, that would be troubling. But the March and April increases in the CPI were notable jumps up from what prevailed for the past year, for example (as noted in the graph below). In fact, over the most recent 12 months, CPI inflation ran at only 2.0 percent.

Source: Federal Reserve Bank of St. Louis, FRED

So, in general, the good news on tame inflation holds – though with the caveat that at least one eye be kept on the CPI and other inflation data to make sure that these last two months of data do not develop into a trend. It is worth noting along these lines that traditional measures that tend to capture inflation expectations – such as the price of gold and interest rates – have remained quite tame.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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