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Inflation update

The personal consumption deflators have been fairly tame of late (the headline rate was slightly negative in June), but on a year-over-year basis, both the core and the headline version are registering 1.4%. That's less than I would have expected a year ago, and both are within the Fed's desired 1-2% range, so while I'm disappointed about being wrong, I'm happy that inflation so far has not been problematic.

I still think the risks are skewed to rising inflation in the future, and I still take issue with those who worry about deflation. Just as a reminder that there are a lot of prices out there that are rising, I offer the next chart, which is the CRB Spot Commodity Index; it contains no energy and many of its components are very basic items that don't have futures contracts associated with them, so speculative pressures most likely don't have a lot of influence on this index. As you can see, it has bounced nicely in the past week or so, and is very close to its recent highs. It's only 8% below its mid-2008 all-time high.

I would also note that the dollar has dropped about 9% in the past two months, which means that the average price of anything that you buy overseas has risen by 9%.

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