Good Deflation

03.24.2015
Economy

New U.S. Consumer Price Index (CPI) numbers are showing the impact of lower energy prices.
Year over year, U.S. CPI is now negative at -0.1% change. This is due to a whopping -18.9% change in energy costs. Core CPI is also benign at 1.7% change driven by higher services costs. From January to February, CPI was up a very modest 0.2%.
The low CPI environment has many benefits and a few drawbacks. For the Fed it means we are way under their 2% CPI target, which means we may see a rate increase, but likely later rather than earlier this year.
It helps the cost of borrowing for all, and it means any pay or bonus increases far outstrip inflation. For savers, though, it means continued low interest rates from financial institutions.
While in most cases deflation is bad, given the circumstances driving CPI today, for most people, on balance, this is good news.

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