The trend in inflation remains muted at best. In my opinion, this is consistent with a weak economy where purchasing power is soft and aggregate demand remains tepid. The driver of the headline index remains energy prices which had tumbled 30% into the release of this data (the end of June). Energy prices have since rebounded 10% so we could be on the verge of some stabilization in prices. Nonetheless, we’re far from seeing any sort of upside inflation pressures as the headline posted just a 1.7% increase and the core posted a 2.2% increase.
My housing adjusted CPI is showing even weaker pricing trends. At just 0.58% year over year the index is very close to a deflationary reading. As you can see below this index has proven to be a fairly reliable leading indicator of inflation over the years. The current reading is pointing to an economy that remains very weak and likely weaker than the headline figure is currently saying.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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