U.S. Inflation…Or Deflation?

U.S. Inflation …. Or Deflation?

16 November 2007

Although inflation concerns are proving to be stubborn, the latest reading for U.S. core CPI once again highlighted that the odds of a deflation scare are climbing.

Core CPI is just over 2% on an annual basis, and is set to decelerate. Earlier upward pressure from the shelter component of CPI is easing [[I very much doubt it, considering the curious way in which this component was/is calculated: normxxx]], while goods prices are already firmly in deflationary territory. Service sector inflation (outside of housing) failed to gain a head of steam during the economic boom, and is likely to drift lower with the economy growing at a sub-par pace. Retailers are back in aggressive price discounting mode. Inflation is not going to be a constraint on the Fed, and we expect further rate cuts ahead, especially with the credit crunch continuing to roll on.

Normxxx    
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