We’re Not Out of the Inflation Woods Yet
The drive toward lower inflation likely hit a speed bump in January.
Next week the Department of Labor will release its report on consumer prices in January. The headline Consumer Price Index (CPI) declined 0.1 percent in December after slowing to just a 0.1 percent increase in November. This has helped move financial asset prices higher on the hopes for something like “immaculate deflation,” a term used for the idea that inflation can come down without a major hit to the labor market or economic growth. It’s unlikely, however, that January will come in as a second consecutive month of deflation.
One reason to expect inflation has accelerated is that the biggest contributor to the decline in headline CPI in December was a drop in gasoline prices. The index tracking gasoline fell 9.4 percent, the fuel oil index dropped 16.6…