Inflation remains stubborn despite June’s good report: CEI analysis

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Monthly inflation dropped -0.1 percent in June after being unchanged in May, according to the latest Consumer Price Index report. While this is good news, CEI senior economist Ryan Young says that inflation remains a stubborn issue for the economy. 

“Month-over-month inflation went negative in June after zero inflation in May. This is good news. But before we get too excited, this is the eighth month since the beginning of 2002 where monthly CPI inflation was either zero or negative, yet year-over-year inflation remains 3 percent, still above the 2 percent target. These good months have been more than outweighed by bad months.

“Inflation expectations are still being stubborn for several reasons. One is that neither party has credibility on spending restraint. Another is that the Fed is likely to go on a stimulus binge if the economy slows, such as cutting interest rates or growing the money supply too quickly. If they do that, inflation will go back up.

“Markets and businesses are factoring that expected inflation into today’s contracts, investments, and supply chain decisions. That is why inflation has still been going up despite generally good monetary policy from the Fed.

“Good news like the last two months’ CPI reports is always welcome. But absent some structural reforms like credible spending discipline from Congress, or a binding policy rule from the Fed, it will be some time before inflation expectations let inflation back down to acceptable levels.”