Inflation Update – Still Benign
This morning’s CPI release from the BLS showed a slight uptick in inflation from 1.7% to 2% year over year. The core inflation rate has now completely converged with the headline rate in what is a clear confirmation that the headline rate was temporarily elevated in 2010 and 2011.
The housing adjusted CPI rate which is now published by Orcam Financial Group, was marginally higher on the month at 1.85% from last month’s reading of 1.55%. This is consistent with an economy that is operating well below capacity and an inflation rate that remains well below its historical averages. These independent inflation gauges have all been confirming the BLS data in recent months despite some chatter that inflation is running higher than some might presume. We believe this is due to the rise in prices in what some might deem “items you can’t live without”. As we highlighted earlier this month, there has been some deviation in the price of particular items (like energy, health care, rent, etc) and some of the less “necessary” items included in the CPI.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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6 Comments
Cullen I was reading the Bank of Canada’s speech on the state of affairs. It seems he has a good grasp of the monetary system and global risks.
http://www.bankofcanada.ca/2012/10/speeches/uncertainty-and-global-recovery/
Cullen – Your thoughts on an optimal inflation rate? I’ve read elsewhere (mainly Krugman) that if we experienced higher inflation, say perhaps 4%, it would boost the economy. The reason being that all this private debt overhang is a major factor in this sluggish recovery, so if the real value of debt were to be reduced due to inflation then it we could make progress in getting out of the doldroms.
Isn’t the optimal inflation rate the one which coincides with full output and full employment?
What about actual employment and actual output?
Those are real terms. It’s very hard to determine what full output and full employment would be.
Seems that if the money supply grows faster than actual output you will have problems?
Well, the Fed is targeting 2% inflation right now. Are you saying that it should be allowed to go higher?
Again – are you saying the inflation rate is too low? I think so. I’m curious to hear your take as I respect your opinion.