With Core Inflation at 2.5%, Inflation Isn't a Worry

by: Mark J. Perry

According to Brian Wesbury and Bob Stein, "Inflation is the leading menace to the US economy."

Although I usually agree them, I don't see inflation as much of a menace right now. The core CPI inflation on an annual basis was 2.5% in July, barely above the 10-year average of 2.21%, below the levels close to 3% between mid-2006 to early 2007, and way below the 4.58% average since 1970 (see graph above).

In my opinion, unless and until the core CPI inflation starts to rise, inflation ain't a big problem. For example, inflation WAS a huge problem in the 1970s and early 1980s, but it was when CORE CPI INFLATION was rising by double-digits, not just oil, energy and food prices. By definition, inflation is a phenomena when ALL prices, in general and on average, are rising, NOT just food and energy. With core inflation so low and stable, I don't see how inflation can be a menace. And with oil prices plummeting and the dollar soaring, look for August inflation, both overall and core, to moderate.