April 16, 2009
Yesterday the news reports were filled with stories about the US consumer price index having fallen into negative terrain for the first time since 1955. According to the U.S.Bureau of Labour statistics ,which incidentally runs an excellent on line site, inflation in March as measured by the urban consumer price index fell by 0.4 %. overall over the past 12 months on a seasonally adjusted basis. The seasonally adjusted index fell 0.1 % in March after rising 0.4 % in February. The principal force behind the fall was the decline in fuel oil, natural gas and motor fuel prices. Food prices also declined for the second straight month.
This data reveals that we have to be vigilant over the possibility of deflation entrenching itself in the economy.
On the other hand, banking profits as reported by Goldman Sachs, Wells Fargo and J.P.Morgan were somewhat higher than expected suggesting the possibility that better times were ahead. But there are also still contrary facts available such as the decline in industrial production and less than robust retail sales data. So for the moment the U.S. is on the right path to recovery in terms of the stimulus in place and its efforts to unfreeze the credit system but it will be awhile ,perhaps as long as two more quarters before the economy begins to accelerate to a higher growth path.
The neo-con attack on President Obama's policies is misguided, particularly in the light of the deflationary data.We might well see positive evidence of this before the end of the year.
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