Inflation May Be Creeping Higher

The government reported that inflation rose 0.44% last month. That’s the biggest increase in more than two years.

For some context, let’s remember that we recently had three straight months of deflation (November, December and January). Those decreases were fairly sizable. In fact, year-over-year CPI is still negative. CPI dropped 0.11% in the last 12 months. Past of that is because the trailing 12 months is carrying those big drops we had this winter.


But slowly, it appears that inflation is creeping up on the Fed’s 2% target. I don’t want to overstate the case. There still isn’t much evidence, but we can say that our recent bout of deflation has passed.

Since the recent deflation was largely driven by falling energy prices, let’s look at the core rate of inflation, which doesn’t include food or energy prices. Core prices rose by 0.15% in May. That comes after a 0.26% jump in April which was the largest increase since August 2011. Core prices are up 1.73% in the last 12 months. Interestingly, that hasn’t changed much in the last two years.

Here’s a stat the surprised me when I calculated it: Core CPI is tracking 2.37% so far this year. (That’s the annualized increase of the last five months.)

Posted by on June 18th, 2015 at 10:43 am


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