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News Link • Economy - Economics USA

Deflation Theory Reality Check: Why Inflation is Severely Understated; Feel Good Effect

• Mike Shedlock

To understand the context of my question, please consider the Bloomberg article Price Slowdown for Cars, Baby Clothes Raises Fed Concerns by Michelle Jamrisko and Ilan Kolet.

Five years into the U.S. economic expansion, inflation shows little sign of picking up as prices rise more slowly for goods and services from automobiles to medical care, complicating the Federal Reserve's drive to guide the economy away from the precipice of deflation.

The personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955. Of 27 categories of goods and services in the gauge, 18 showed smaller price increases over the past two years, according to data compiled by Bloomberg.

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