The Current Inflation Tame
Though consumer prices declined on the top line, some areas saw substantial increases, says Morningstar's Bob Johnson.
The Current Inflation Tame
Jason Stipp: I'm Jason Stipp from Morningstar. The government released its
inflation data on Wednesday and it showed that consumers had a
little bit more wallet power in April with consumer prices dropping
0.1% month over month.
Here with me to give his reaction to the report is Morningstar's
Bob Johnson. He's associate director of economic analysis. Thanks
for joining me, Bob.
Bob Johnson: Great to be here.
Jason Stipp: So the numbers in Wednesday's report were lower than a lot of
people were expecting. What was behind that and did you find that
Bob Johnson: Well, I was thinking we'd have a small increase in inflation this
month. A positive tenth, instead we got a minus tenth. And clearly
behind that was lower energy prices and flat prices in the housing
market, which really drove the numbers.
Jason Stipp: So, Bob, it seems like if prices are lower it's a good thing for
consumers overall and their purchasing power. What are some of
the economic benefits of seeing a mild inflation or even a slight
Bob Johnson: One of the things that I look very carefully at is what is the real
hourly wage? And that means wages adjusted for inflation and
that's critical. It's been proven to be one of the better predictors of
what consumers are actually going to spend in retail spending in
the months ahead. So it's a very good predictor, and it's very
So we've been through a period where we've had relatively flat
wages, and for four or five months, we had inflation starting to
come up a little bit. And I was getting a little worried. That real
wage is pretty much flattened out.
And I'm glad to see that the inflation rate actually is down a little
bit. Because it's going to put some money back in the consumer's
pocket again. Lower gasoline prices give them the wherewithal to
go spend money on other goods.
Jason Stipp: But consumers are facing some higher costs in some areas you
found in the report. So it's not like prices across the board went
down. What did you see?
Bob Johnson: Right. And it's very fascinating. A lot of the times the numbers are
just a bunch of mumbo jumbo, but there are a couple of clear
patterns in the numbers.
One of the things was anything that's government related went up.
And apparently in governments' attempt to recoup their budget
losses, are raising prices to consumers. They're sticking it to the
We see it in many areas. Water bills, trash collection would be
another. Kind of peripherally, education is related to state budgets
in many cases. And all of those were up big. Public transportation
was up 1.7%. That's not year-over-year or funny seasonal
adjustments, that's one month's jump in public transportation. So
governments are putting it to the consumer.
Jason Stipp: They're waiting for some of that income tax revenue to pick up
with the job market. They're going to try to squeeze some money
out from some other areas.
So looking then, inflation was up 2.2% year over year.
Bob Johnson: Correct.
Jason Stipp: So looking that we did have a slight decrease in prices month over
month, does this adjust or change what you were thinking for what
we were going to have this year? And have you changed your
thinking on that?
Bob Johnson: Well, it certainly calls into question a little bit: I had 3% inflation
December to December type of forecast. And so far in the first four
months, we're probably up less than 1%. So it's going to be pretty
hard to get to that 3% number frankly, and I'm going to have to
revisit that in the weeks ahead.
And obviously faster U.S. growth was one of the key things in my
forecast. We have gotten that. But, now rates have stayed lower
than I expected. And now the strengthening of the dollar, of all
things, is actually going to help control inflation in the months
ahead. So those factors will probably cause me to revisit that
number in the months ahead.
Jason Stipp: Now looking at a little bit longer term. Even if you might moderate
some of your expectations for inflation this year, you still do think
this is going to be an issue that we're going to have to deal with? I
mean, is it possible that we might just see a quick snap in inflation
at some point?
Bob Johnson: Oh, yeah. I think that these numbers are great and it's just the
nature of how they're constructed; it's going to be hard for them to
get bad in a couple of months. But that said, there are still things
out there. I mean, commodity prices are still relatively elevated and
you've got demand from emerging markets.
Emerging markets right now are still relatively strong. And if they
create the demand for copper, we still have to pay that price. So
that's certainly one thing that flows through the indexes. And just a
lot of goods come from China in general and last week we saw
pretty dramatic inflation, almost out of control inflation out of
China. We're talking 2.2% year over year inflation in the U.S.
They're talking 2.8% month over month inflation. So clearly the
inflation numbers are even beginning to scare the Chinese
And of course, we buy things from them and that slowly will come
up through our food chain. So I'm still thinking in longer term I'm
more worried about inflation than deflation. But in the short run,
the news is certainly good.
Jason Stipp: Well, Bob, thanks for your insights on the report on Wednesday
and for your longer term outlook.
Bob Johnson: Thank you.
Jason Stipp: For Morningstar I'm Jason Stipp, thanks for watching.
The Current Inflation Tame
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