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A CPI Christmas present

The November CPI report was uneventful, but if anything it's a nice Christmas present because it shows that inflation is not the problem that so many—including me—have worried about, at least for now. Most measures of inflation in fact have been relatively tame in recent months, showing inflation to be running at about a 2% annual rate, which is nothing at all to be concerned about.

The first chart above shows the year over year change in inflation, while the second shows the 6-mo. annualized rate of inflation. Using more recent data, this second chart highlights the relatively tame nature of current inflation.

Falling energy prices have been a big part of the reason inflation has been so tame. This chart shows the CPI ex-energy, but even that is only running at 2.4% over the past six months.

Natural gas prices have fallen significantly, thanks to huge new discoveries and production in the U.S. As Mark Perry notes, in looking at the CPI report, natural gas is "the only item that has fallen in price over the last 12 months (-1.3% vs. a 19.7% increase in gasoline)." If anything is disruptive, this is, because (as the second chart above shows) natural gas has now become incredibly cheap relative to oil. This is going to transform energy-intensive industries and enrich the lives of everyone.

I'm not letting down my inflation guard, however, but for the time being my level of concern has eased, and that adds to my belief that the outlook for the economy is better than most people think.

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