The U.S. Bureau of Labor Statistics reported today that Consumer Price Index (CPI) inflation registered 0.1 percent in May. In April, the change in CPI changes was flat.
Over the past 12 months, the CPI actually declined by 1.3 percent – the biggest drop since April 1950.
So, no one should be worried about inflation, right?
Well, two issues are worth pondering.
First, keep in mind that the numbers reported today are backward looking. It’s like trying to drive a car by looking in the rear view mirror. Bottom line: Just because inflation has been tame in recent months does not mean it will be tame looking ahead.
Second, since inflation results from too much money chasing too few goods, business owners and investors should be wary given the unprecedented expansion in the money supply by the Federal Reserve over the past nine months.
So, we have good news on inflation … for now. Looking ahead, there are real concerns. Barring some miracle pulled off by the Fed, inflation will be picking up. The only question is: When?
Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council
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