Weak CPI Report for August

The inflation report for August came out this morning. Headline inflation fell 0.071% last month. So we’re talking about raising interest rates while we’re experiencing deflation. Year-over-year inflation rose from 0.17% through July to 0.20% through August.

It’s not just commodity prices. Core inflation rose by just 0.074%. That’s the lowest rate all year. Core inflation is now running at just over 2% this year.

Here’s the year-over-year inflation rate (black) along with the Fed funds rate (blue). You can see that the Fed has kept real rates negative (black higher than blue), but that’s come undone recently. In other words, by doing nothing, the Fed has effectively tightened rates.

Posted by on September 16th, 2015 at 10:20 am


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