U.S. Consumer Prices Rose Strongly Again in May
Two words: base effects.<p>Year-over-year comparisons reflect the abysmal economic conditions during the pandemic. It&#x27;s like comparing your current net income to one year ago but one year ago you were unemployed and paying off student loans while today you have a job at Google.<p>The comparisons to watch are month-over-month (MoM). The BLS reports MoM CPI increased 0.6%, after a 0.8% MoM increase in April:<p><a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;news.release&#x2F;cpi.nr0.htm</a><p>So the rate of CPI change is negative MoM.<p>From the same page, BLS reports CPI less food and energy fell MoM from 0.9% in April to 0.7% in May.<p>The real headline here should be that inflation is slowing on a MoM basis.<p>It&#x27;s that rate of change of inflation that matters. If it remains negative (disinflation), then price increases will continue to subside.<p>But if CPI growth remains negative for long enough, it can translate into deflation. That&#x27;s not an outcome being discussed widely now, and for that reason (among others) it should be considered seriously.<p>Policy makers talk and act as if only one of those two outcomes truly terrifies them: deflation. Japan has been in an on-again-off-again deflationary slump for decades, despite the BoJ now owning a good chunk of the Japanese stock market, many years of QE, and substantial deficit spending.