Not Deflation

The Consumer Price Index dropped 0.7% in January, bringing the year-over-year change to negative 0.1%. With the exception of the 2008 financial meltdown, the January decline brought the index to its first negative annual change since 1949 (see Chart below).

Energy is behind this. Energy prices fell 9.7% in January, and are down 19.6% over the last 12 months. Ex-energy, CPI is up 1.9% from a year ago.

This is not deflation, which is caused by tight money, but rather a one-off drop in the price of an important commodity.

The headline number also obscures encouraging data on income. Real (after-inflation) incomes rose for the fourth straight month, are up 2.4% from a year ago, and have accelerated to a 4.9% annualized pace over the past six months.

The decline in energy prices is a transfer of wealth from producers to consumers. It is not deflation, or anything other than that. Full stop.

• 4 Mar, 2016

  In A Hole

  Two months ago, I offered some hope that drop we saw on the first day of 2016 was a good omen for the rest of the month ...

• 28 Nov, 2016

  Shock, Part 2 (The Asset Allocator's Dilemma)

  In Shock (Part 1) (http://blog.angelesadvisors.com/2016/11/shock-part-1/), we looked at a possible Trump economic agenda ...

• 15 May, 2018

  Everybody Out'ta the Pool

  Markets work through the forces of demand and supply. This axiom applies to all markets, from housing to marriage (as ...