Today’s release of the Consumer Price Index and falling rates of inflation begs the question, “When will prices begin to rebound?”
Year-over-year, the headline rate of inflation is down 2%, the largest decline since 1949, as oil prices are down sharply from one year ago.
The core rate of inflation, which removes food and energy, are up 1.5% versus one year ago and are in a downward trend.
Therefore, it behooves us to look at past cycles in order to gain some insight into what we may see this time around.
The charts below were provided by the Bureau of Labor Statistics and look at year-over-year headline inflation from the two prior economic cycles.
Although the 1990 recession ended late that year, the CPI entered a long-term downward trend amid stable commodity prices, rising rates of productivity, and globalization, which helped open new manufacturing facilities around the world.
Productivity continued to exhibit gains in the early part of the decade, and inflation headed lower even as the economy slowly rebounded beginning in late 2001. But crude oil and commodity prices began a long march upward, which was something we hadn’t seen in over 20 years.
As a result inflation bottomed earlier in the economic cycle.
Looking ahead, we could see falling rates of core inflation well into 2010, if prior trends hold up. Worries about higher prices from the huge amounts of fiscal and monetary stimulus may not become a concern until 2011 or 2012, in my view.
0 comments:
Post a Comment