Inflation Figures Sending Mixed Messages

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With a variety of news outlets reporting on inflation figures for the month of September, activity in certain consumer price sectors seems to send a mixed overall message for the United States’ economy going forward. The Department of Labor issued a report Wednesday, showing an overall 0.1 percent increase of the broad Consumer Price Index over the previous month. While that movement represented a slight reversal of a late summer trend, the Federal Reserve, which uses its own index for tracking purposes, still reports the overall rate of inflation remaining under its stated target of 2 percent.

These figures themselves send a mixed, often paradoxical, message to consumers and lending institutions regarding inflation, depending upon their perspective. The dollar rose 0.5 percent on the Intercontinental Exchange index as the price of gold slid off of a six-week high, according to The Wall Street Journal, in what might come as some measure of relief for American workers who have been mired in wage stagnation since the depth of the recession that followed the mortgage-backed securities crisis.

However, many economists remain concerned about the effects of the suppressed interest rates that low inflation entails. As illustrated in a partial quote from a report by The McKinsey Global Institute regarding the period during and after the “Great Recession”: “this [5 percent corporate profit increase due to reduced debt service obligations] has not translated into higher investment, possibly as a result of uncertainty about the strength of the economic recovery, as well as tighter lending standard.” The report went on to state a $630 billion loss of net interest income between families in the United States and United Kingdom from 2007 to 2012, with the burden being disproportionately shouldered by older households with more interest bearing assets such as mutual funds and retirement accounts. Surprisingly, banks in the US also saw an increase in their net interest margins over that time frame, while their counterparts in Europe did not.

The interchange between inflation and interest rates also serves as the raison d’etre for the Feds’ controversial Quantitative Easing policy, a thorn in the side of fiscal conservatives. Ron Paul, the raconteur of the 2008 and 2012 presidential elections and arguably a founding father of contemporary American libertarianism, stated his opinion of a preferable alternative to Quantitative Easing in an interview found on “We should never have started it. We should have allowed the liquidation of all debt and let the bankruptcies occur, pick up the good pieces, and people would go back to growth again and it would have been over in about a year.”

His thoughts are reflective of those of many people concerned about the rapid accumulation of national debt, though most “mainstream” economists consider non-intervention as an unacceptable risk. Publications such as the previously quoted McKinsey Global Institute readily reiterate that the unorthodox actions of central banks in response to the last recession most likely lessened the depth and breadth of the financial meltdown.  Regardless of which side of this apparent ideological divide one comes down on, most Americans continue to be sent mixed messages on whether to view these inflation figures with hopeful optimism or skeptical caution.

By B. J. Whittemore


The Wall Street Journal

The Wall Street Journal (2)

The Wall Street Journal (3)


Business Insider

McKinsey Global Institute