First, consumer inflation dropped to 3 percent, the lowest level in more than two years. Even though energy prices bounced back a bit, declines in food costs and other segments kept the headline number down. For the core number, which excludes food and energy, we also saw a drop to 4.8 percent. This result is higher than the headline, but it’s also a 20-month low. More to the point, the major driver of core inflation, shelter, continued to edge down, and service costs also showed signs of pulling back. Consumer inflation is clearly continuing to drop, which is good news for everyone.
As they say, that’s not all—because the producer price news was even better. That headline number dropped to just above zero, at 0.1 percent, suggesting that inflation for businesses is essentially gone. Here, too, the core number was higher. But at only 2.4 percent, it is close to the target level. From a business perspective, the inflation battle could be close to over, and that opens the door to continued declines in consumer inflation.
This drop should also help loosen financial conditions, as interest rates declined on the good news. While the Fed is still expected to raise rates at its next meeting, future increases now look more doubtful—and that should help the economy as well. Between that and last week’s strong jobs report, it makes sense that consumer confidence jumped as well. The inflation news was great on its own, but it is also driving other improvements.
And that’s what mattered this week. Inflation is down, and we have even more good news as well. That’s a good start to the weekend.
Have a great one!