If deflation’s still a threat, it wasn’t obvious in today’s update of consumer prices for June.
The CPI jumped 0.7% last month, the government reports. That’s the highest since July 2008, which also posted a 0.7% rise.
Much of the gain in CPI last month came from energy. Nonetheless, core-CPI (excluding food and energy prices) still rose by 0.2%. So far this year, core CPI is up every month. In addition, core CPI’s three-month annual rate is now running at 2.4% through June, or slightly above the Federal Reserve’s long-term top-end target for core inflation. Another intriguing statistic is that while consumer prices overall have fallen 1.4%, based on headline CPI, core inflation is up 1.7%.
What does this tell us? That inflation, while still quite subdued, isn’t dead as a threat in the medium-to-long-term horizon. No, there’s nothing in today’s report that tells us that inflation’s about to return as a material hazard. There’s still plenty of deflationary/disinflationary pressures bubbling to keep a lid on prices overall for the time being. But today’s CPI report reminds that the potential for trouble down the road is still there.

Some have dismissed recent worries about future inflation as misguided. We’ve argued otherwise for much of this year, including here and here. The latest CPI numbers don’t offer any reason for changing our view that worrying about inflation down the road is still warranted, even if deflation is still the more timely concern.
Then again, today’s CPI news suggests that deflation may be less of a threat than it was earlier in the year. If so, that means inflation’s more of a threat. We’re still talking marginal changes in risk potential on both sides. But nothing remains the same in the capital and commodity markets and it’s hard to ignore the numbers du jour.
As we’ve been discussing for some time now, the post-apocalypse world that we’re now in will be far more complicated and nuanced in what we expect will be an extended period no/slow growth. All the more so if inflationary pressures return, even at the margins.
Everything from monetary policy to strategic decisions on asset allocation will be tougher as a result. Welcome to the new era.