PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Latest Inflation Data in Light of Current Economic Conditions

By at 12 March, 2020, 9:37 am

Low inflation is a foundational matter that will help weather whatever economic storms lie ahead

by Raymond J. Keating-

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased by 0.1 percent in February, and over the past 12 months, inflation ran at 2.3 percent. For the past seven months, in particular, inflation has been very low.

As reported for February by the BLS:

“Increases in the indexes for shelter and for food were the main causes of the increase in the seasonally adjusted all items index, more than offsetting a decline in the energy index. The food index increased 0.4 percent over the month, with the food at home index rising 0.5 percent, its largest monthly increase since May 2014. The index for energy fell 2.0 percent in February, with all of its major component indexes declining.”

As the U.S. economy braces for economic fallout from the coronavirus, as well as the stock market selloff, low inflation is a foundational matter that will help weather whatever economic storms lie ahead.

Of course, when noting the latest inflation numbers, thoughts turn to the Federal Reserve. Pressure on the Fed to cut the federal funds rate even further – after a cut last week – has crossed into the universe of complete economic absurdity. The fact remains that cutting already historically low interest rates will mean nothing in the face of coronavirus economic troubles.

Assorted politicians, Wall Street talking heads and others in the media have bestowed the Fed with magical economic powers – unfortunately, with the support of some economists along the way. But in reality, the Fed possesses no such powers.

The Fed’s monetary policy lever cannot juice up the economy. We should have learned that over the past 11-plus years. But when it comes to the economy and policy, many lessons seem to go unlearned.

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

 

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