Chart:  "Core" CPI (Consumer Price Index Less Food and Energy) 
May 14, 2004

The Bureau of Labor Statistics released new inflation figures this morning.  Overall, the year-over-year growth in the "core" Consumer Price Index (CPI) remains below 2 percent, which is in the "almost no inflation" range.  However, the 3-month trend has been at or above 3 percent for two straight months, and the 6-month trend is also sharply higher (see Figure 1 below).

In general, rapid productivity growth is helping hold inflation down.  In fact, two years ago, the larger worry was sustained deflation, a problematic, sustained reduction in prices.

However, now that the recession is really over, the huge budget deficits and ultra-low short-term interest rates that have stimulated rapid economic growth over the last year cannot persist for long without sparking an increase in inflation.  Either Congress will have to get the budget under control, or the Federal Reserve will be more aggressive than many expect in raising interest rates back to normal levels.

Figure 1.


Links:
Centrists.Org More Good News on Jobs -- More Bad News on the Deficit (May 5, 2004)  The number of payroll jobs jumped in April, following a big gain in March.  These were the first bursts of job creation since the recession began in 2001.  The bad news is, the budget deficit keeps getting worse.  

Jeff Lemieux Mortgaging the Future in Blueprint, the magazine of the Democratic Leadership Council (May 7, 2004)  Large budget deficits and ultra-low interest rates provided an enormous economic stimulus over the last three years. We will eventually have to pay for that stimulus, either with higher taxes, lower government spending, or higher interest rates.

Centrists.Org It's The Sunsets, Stupid!  CBO and JCT Should Show the Extended Cost of Expiring Provisions (May 3, 2004)  The use of sunset provisions has distorted the budget process and can make a mockery of budget rules.  The Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) should show the full, 10-year cost of expiring tax cuts or spending bills in the footnotes to their official estimates.

Centrists.Org A "Duck-The-Issues" Budget -- Interpreting the Congressional Budget for 2005 (revised March 19, 2004)  Will the Congressional budget really reduce the deficit?  The answer is "probably not."  This year's budget is a stop-gap measure that does not attempt to grapple with the larger fiscal problems facing the nation. 

Centrists.Org Realistic Budget Targets and Some Initial Deficit Reduction Options (February 21, 2004)  Congress should reduce spending to 19 percent of GDP and raise revenues to 18 percent of GDP by 2007.  It will require letting some tax cuts expire and "unaccelerating" others, reducing appropriations throughout the budget, and re-visiting the recently passed agriculture and prescription drug laws.