by Frank James
President Harry Truman famously said what he needed was a one-handed economist to avoid the profession's tendency towards "on one hand, on the other hand" messages. But that doesn't address the situation where get two economists pointing in opposite directions.
Today's consumer price index report for March from the Labor Department either means inflation may be moderating or it may be ready to surge forward, depending on whom you believe.
The overall CPI rose 0.3 percent for the month, while core inflation, which subtracts food and energy prices from the index, rose 0.2 percent.
The annualized rate for total inflation for the last three months was 3.1 percent compared with the unadjusted 4.0 percent for the 12 months ended in March. Excluding food and energy, the annualized rate for the three months ending in March was 2.0 percent; the rate for the trailing 12 months was 2.4 percent.
Now, this looks like good news, like inflationary pressure just might be slowing. That's certainly the interpretation of the data offered by Bernard Baumohl, an economist and managing director of the Economic Outlook Group in Princeton, N.J.
By digging into the CPI data we think a credible case can be made that inflation is behaving as expected in a recession and starting to moderate. Pricing power becomes increasingly difficult to maintain when there is a slowdown in demand. Inflation may thus be approaching a critical inflection point, though we’ll need a few more months of data to be certain.
On the other hand, (see how easy it is to be pretend to be an economist?) maybe this is just a brief respite from inflationary pressures. That's certainly the take of Dean Baker, an economist with the Center for Economic and Policy Research.
In addition to the reported fall in apparel prices, there were several other anomalies that held inflation down in March. Hotel prices fell by 0.6 percent after dropping by 1.2 percent in February. Clearly this rate of decline will not be sustained. Medical care costs rose by just 0.1 percent for the second consecutive month. It is unlikely that health care costs have suddenly been contained...
While the inflation numbers at the consumer level seem relatively contained, this is not the case at earlier stages of production...The worldwide surge in commodity prices is the main villain in this picture, but the falling dollar is leading to higher import prices in general... Higher import prices and rising world commodity prices will eventually show up in higher consumer inflation.
So inflation could be slowing down. Then, again, it may be about to speed up. That clears it up.