The
Bureau of Labor Statistics
(BLS) announced Tuesday that there was no inflation overall in
April. This is good news, but the reasons behind it may not be so
good.
The BLS announced that the Consumer Price Index (CPI), the most
widely followed index of U.S. inflation, was unchanged for the
month of April. Inflation is always a force to be reckoned with,
and in an era of low pay increases and virtually
non-existent interest rates
on savings accounts and other deposits, most household budgets are
especially sensitive to inflation. So, seeing inflation simply not
show up for a month is a bit of a relief.
But there is a catch to this good news.
The latest inflation trend
The unchanged CPI for April marked the first 0 percent monthly
inflation reading so far in 2012. Prior to that, inflation was
starting to look as though it might be a problem this year.
Inflation increased by 0.9 percent in the first quarter, which put
it on pace to rise by more than 3.6 percent for the full year.
That's not extraordinary by historical standards, but certainly an
out-sized threat given the extraordinarily low level of interest
rates today.
Instead, inflation cooled off in April. As a result the
year-over-year inflation number dropped to a moderate 2.3 percent.
That's still more than enough to wipe out a couple year's worth of
savings account interest, but if April's reading marks a turn in
the inflation trend, prices may ease even more.
The influence of oil
For better or worse, the key driver of inflation so far this
year has been the price of oil. When the combination of Middle East
tensions and economic optimism sent oil prices soaring earlier this
year, it was the biggest factor in pushing the CPI higher. However,
April saw the price of oil influence the CPI in the other
direction.
Overall, the energy component of the CPI declined by 1.7 percent
in April, meaning that while prices overall were flat, energy
prices were actually falling. Gasoline prices fell by even more,
dropping by 2.6 percent in April. Based on developments so far this
month, it looks like the trend of falling energy prices could
continue in May, taking even more pressure off of inflation.
Here's the catch
Given the star-crossed nature of the U.S. economy in recent
years, it is almost inevitable that there should be a catch to this
piece of good news, and here it is: Oil prices are falling in large
part because of growing pessimism about global economic growth.
For workers looking at minimal pay increases and retirees
getting barely any interest from their savings accounts, seeing the
level of inflation subside should be a relief, but it also means
those pay raises and interest rates aren't likely to get bigger any
time soon. Still, half a loaf is better than none -- and in this
economy, half a loaf is all that many can afford.