Looking at the past 12 months, our inflation problem - ignored by Ben Bernanke and Company at the Federal Reserve - has mounted. CPI inflation ran at a hot 3.6% over the past year, with the same annualized rate for the past six months.
However, in June, CPI inflation was nonexistent, with the general price level declining by 0.2%. The difference was the big fall in the gasoline index.
CPI inflation also has slowed for three straight months now: 0.5% in March, 0.4% in April, 0.2% in May, and -0.2% in June. That's a welcome trend.
On the flip side, the Bernanke Fed largely concerns itself with so-called "core inflation." That measure, i.e., relative prices excluding food and energy, showed an increase of 0.3% in June. For the past three months, this "core inflation" has stepped up to an annualized rate of 3.2%. This points to inflation actually spreading throughout much of the economy - for example, from energy and food into other arenas - which would not be an unexpected trend.
So, looking ahead, what should we expect? In the end, inflation is a monetary phenomenon. That is, too much money chasing too few goods, or the growth in the money supply running ahead of money demand. Given the Fed's lack of concern over inflation for nearly three years now, as exhibited by its unprecedented expansion of the monetary base, there's little reason to think that we are out of the inflation woods.
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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council
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