Disinflation Alert

Marketwatch reports:

Consumer prices in the United States fell 0.1% on a seasonally adjusted basis in April as energy, housing, auto and apparel prices declined, the Labor Department reported Wednesday.

It was the first decline in the consumer price index since March 2009. The consumer price index is up 2.2% in the past year.

The core CPI -- which excludes food and energy prices in order to get a better view of underlying inflation -- was unchanged in April, lowering the year-over-year increase in core inflation to 0.9%, the lowest rate since January 1966.

The report was better than expected. Economists surveyed by MarketWatch nailed the 0.1% drop in the headline CPI, but were expecting a 0.1% gain in the core rate. See our complete economic calendar and consensus forecast.

Not sure how a negative print and a 0.9% year over year core print are "better than expected"; to me this is a sign of disinflation (or potential deflation). Not only was the year over year core the lowest level in 44 years, but the rate will likely be headed lower in the near future due to all the concerns that are causing a flight to the dollar (an increase in the value = a decrease in the cost of goods / services all else equal).

First details of the latest headline print showing almost all "inflation" remains in transportation costs.



And details of transportation price increase show they are almost entirely concentrated in fuel.

With a 15% drop in the price of oil over the past month and more favorable year over year comparisons going forward, expect the headline rate to come down further in the coming months.

Source: BLS