Still No Real Inflation

The Consumer Price Index increased in January on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today.

  • The CPI for All Urban Consumers was up 30 basis points.  This was the largest increase since August when the CPI was up 0.4%
  • Over the last 12 months, the all items index increased 1.4%before seasonal adjustment.

The biggest jump was the gasoline index which accounted for most of the increase in the all items index rising 7.4%in January alone.

  • The only other big jump was in Apparel which saw a 2.2% jump in January

The biggest drop was the used car and truck index which fell 0.9% in January.

  • New vehicles were also down with a 50 basis points drop

So what happens next?  There are still two schools of thought going forward with regards to inflation:

  • CONCERNED: Economist Larry Summers’ op-ed in WaPo last week got a lot of attention as he rang the alarm bell about Biden’s stimulus plan overheating the economy,

“…given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply.” (Washington Post)

  • NOT WORRIED: Robert Mead, Pimco’s co-head of Asia-Pacific portfolio management, recently told Bloomberg that although economies are seeing some pick up in prices, inflation targets remain stubbornly out of reach,

“Inflation is something to think about but we’re not concerned about it in the 12-month horizon.  It’s not as though we think yield curves can reprice significantly because you do have central banks observing and wary of a complete shift in the borrowing cost across the whole economy.” (Bloomberg)

It’s too soon in the recovery for us to know who is right, but will we have our answer sooner rather than later.