0

Consumer Price Index holds steady

The CPI tells us how much it costs for important things like housing, food and clothing.

TEXT OF STORY

Kai Ryssdal: This was a head-scratcher of a day for people who make their living parsing economic trends. Consumer prices were mostly steady last month, according to the Labor Department. What's called the Consumer Price Index rose just three-tenths of one percent in August. The core rate, without food and energy, was flat. And over the past year prices have risen just a bit more than 1 percent. That is basically nothing. Good news, on the face of it, for all of us as consumers. But prices that are stuck, going neither up nor down, leave a lot of economists wondering what in the heck is going on.

Here's our senior business correspondent Bob Moon.


Bob Moon: Once upon a time, these numbers might have been seen as something out of a fairy tale. Not too hot, not too cold, but just right.

Ken Mayland: A low inflation, but inflation environment -- not one of deflation, not one of accelerating inflation.

Ken Mayland is head of Clearview Economics. He says tame inflation is what policymakers typically aim for. And when I asked if he's concerned that businesses don't have the pricing power they'd like, he sounded, well, unconcerned.

Mayland laughs

Mayland: That's a good thing, from the standpoint of consumers. Consumers don't want to see price increases. Obviously businesses do want to see prices increases, but that's a pretty good standoff.

But at Naroff Economic Advisors, Joel Naroff says under normal circumstances, in a strong economy, today's numbers might be good news. But for now, the economy is still too cold.

Joel Naroff: We'd like to see demand pick up to the point where businesses feel a little confident to raise prices. We don't want a lot of inflation, but a little bit more inflation might be a signal the economy's beginning to change gears.

So what is "just right"? At MF Global, economist Jim O'Sullivan says the Federal Reserve does have a generally accepted inflation target -- around 2 percent. So less than 1 percent is a little cooler than they'd like -- it's uncomfortably close to the risk of a deflationary spiral.

Jim O'Sullivan: If the economy were much weaker than expected over the next year and the recovery were to disappoint, there's certainly potential for that number to drop into negative territory.

O'Sullivan is quick to say he doesn't expect that to happen. And back at Clearview Economics, Ken Mayland has the opposite worry.

Mayland: If we're getting about 1 percent inflation with all of the slack we are seeing in the economy, one and two years down the road, I'm still worried about the inflation problem more than the deflation issue.

Either way, of course, we're still a long way from "happily ever after."

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.
Log in to post0 Comments
With Generous Support From...