The Labor Department earlier this morning reported that consumer prices rose .2% in April and a total of 2.3% year-over-year, a much tamer figure than most experts were expecting and much less than most people would think, given the high price of food, gas and other items. That’s good news for those that thought we might be in the beginning stages of “stagflation” where we’ve got stagnant growth and high inflation, much as we say in the 1970’s.
The thing to remember about the consumer price number is that it’s reflective of all the goods and services sold in the economy. The .2% number included a .9% rise in food costs and a 5.6% rise in gasoline but a reduction in the price of automobiles and lodging costs (hotels) as the demand for those items has dropped due to the higher cost of food and gas, among other things. Gasoline prices ALWAYS rise this time of year in anticipation of the summer driving season and generally fall as the summer progresses.
The Fed has attempted to the delicate balancing act of cutting interest rates to keep the economy from falling into recession while at the same time not igniting excessive inflation and only time will tell if this month’s inflation reading was merely a statistical blip or if they’ve actually managed to pull it off.