U.S. inflation’s vanishing act

November 16, 2011

It may be hard to convince consumers with stagnant wages that their purchasing power is improving. But according to Labor Department, inflation is certainly on the decline. U.S. consumer prices fell unexpectedly in October, a drop that gives the Federal Reserve more room to consider additional monetary easing if the economy continues to stutter into next year.

Compared to a year earlier, consumer prices rose 3.5 percent following September’s 3.9 percent increase. Core prices rose 2.1 percent in the 12 months through October, up from 2.0 percent in September. But looked at over shorter horizons, the pullback in the rate of consumer price growth is even more pronounced.

Research from Credit Suisse economists puts it in perspective:

The 0.4 percentage point easing in the year-on-year headline inflation rate was the first (drop) all year and the biggest since June 2010. Short run trends were as follows: 2.4 percent 3-month annualized from 4.8 percent last month; 2.1 percent 6-month annualized from 3.1 percent last month.

 

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