The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in February on a seasonally adjusted basis after rising 0.5 percent in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index rose 2.2 percent before seasonal adjustment.
Falling prices are good. They make more things affordable and improve standards of living. Illiterate writers bemoan good things.
Last week's average hourly earnings did in fact set the pace for February's inflation readings, and the word is subdued. The CPI and the core CPI both managed only 0.2 percent increases as was expected with the year-on-year rates at 2.2 percent overall, which was also expected, but at only 1.8 percent for the core which is 1 tenth under Econoday's consensus.
A give back in transportation costs held down prices in February with the component unchanged following a strong gain in January. New vehicle prices fell 0.5 percent in the month with used car prices down 0.3 percent, both echoing flat consumer demand for vehicles. Communication costs were also weak with wireless telephone services, which began to jump about this time last year, down 0.5 percent in the month. Medical care fell 0.1 percent in the month with recreation flat.
Showing price strength for a second month is apparel, led in February by men's apparel and especially apparel for boys. Housing rose 0.3 percent in the month though the closely watched owners' equivalent rent subcomponent gained only 0.2 percent.
Prices are not risking extra vigilance from the Federal Reserve. Until wages get moving, overall inflation may very well continue to run flat with only the slightest hint of upward pitch.
Energy prices help keep the CPI "subdued" this month but contributed to 2.2% year-over-year gains. Vehicle prices are slumping month-over-month and year-over-year.
Hooray, your dollar buys more. Economic illiterates believe that is a bad thing.
No Economic Benefit to Inflation
My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
BIS Deflation Study
The BIS did a historical study and found routine price deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Stupidity Well Anchored
Inflation expectations may or may not be well anchored, but stupidity sure is.
Extremely destructive asset-deflation is right around the bend.
Mike “Mish” Shedlock