NPR logo Inflation Disappears In July As CPI Shows Zero Change

Inflation Disappears In July As CPI Shows Zero Change

Inflation watchers, keep looking. The new Consumer Price Index just came out, and it shows overall prices were absolutely flat in July. In June, prices rose 0.7 percent. Economists had predicted an increase in July of 0.1 percent.

Today's numbers track with the report on retail sales from July, which fell 0.1 percent. Clearly, demand is still very low.

Prices were down in several major categories last month. Food fell by 2 percent, led by critter products at 1.3 percent. Housing dropped 0.2 percent. Energy fell 0.4 percent

The report shows signs of what's in the news. Used vehicles fell 7.9 percent. New vehicles rose 1.2 percent (more cash for non-clunkers?). Medical care rose 0.2 percent.

CPI has fallen 2.1 percent over the past year. The lack of inflation has so far allowed the Federal Reserve to keep interest rates low. Inflation hawks have warned that the loose monetary policy will lead to inflation once the economy recovers. Not yet.

Economists consider an inflation rate of 2 or 3 percent a year to be healthy, since it wards off deflation. Technically, deflation is when wages and prices are both falling, with wages falling faster. In real terms, deflation is a spiraling disaster. It's much harder to fix than runaway inflation.