Key Inflation Indicator Goes Negative, But Don’t Panic
There was an interesting nugget of data buried deep in the GDP report from the Bureau of Economic Analysis: The rate of change of the deflator for personal consumption expenditures fell to an annual rate of -0.1 percent from the 0.0 percent rate reported earlier.
An even broader measure of inflation, the GDP deflator, was also revised downward, although it remained positive. The PCE deflator, rather than the more widely publicized Consumer Price Index, is the Fed’s preferred indicator of price trends.
The downturn in the PCE deflator prompted University of Michigan professor Justin Wolfers to ask, in a blog post on by Bloomberg, where the panic over deflation was. To be fair, Wolfers was quick to say that he himself was not panicking at a one-quarter downturn in a single inflation indicator. Still, it is a good question. Is this the time to begin worrying about deflation, or is it not?