Consumer Price Report And Some Thoughts On Inflation From Volcker

In case you missed it, producer prices were up 0.8% in January after falling 1.9% in December. Core producer prices – minus energy and food prices – was up 0.4%. In other words, the deflation devil is not in the room yet.

Economic reaction at the Wall Stret Journal Real Time Economics blog included these comments:

On balance this report assuages some of our worries that disinflation was occurring much more rapidly than we expected. Heavy discounting over the Christmas season helps to explain at least some of the very low readings, though inflation clearly remains quite low and the trend is still toward even lower inflation. – Goldman Sach U.S. Economics Research

Overall the report emphasizes, as we have argued in the past, that the decline in the CPI in Q4 likely exaggerated the underlying trend in inflation. While core inflation is expected to remain uncomfortably low for some time, the rebound in January suggests the U.S. has not yet slipped into serious deflation. – Nomura Economic Research

Also worth noting are the words of Paul Volcker voiced today on the subject of inflation.

Yet he cautioned that the Fed shouldn’t lose sight of a key part of its mandate — to fight inflation. “I think ‘a little inflation’ is bad, because a little inflation means some more inflation,” he said. “I don’t think here’s any arguing for a little inflation solving our problems in any realistic sense.”

“I don’t want to lose the accomplishment of the last 30 years of the central importance of price stability and the role of an independent central bank in maintaining that price stability,” he said.

Interesting words at a time when a lot of economists are starting to argue not for a little inflation but a good dose of it (see yesterdays post here).

more: here and here

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