Economists are increasingly concerned about emerging signs of deflation in the U.S. economy, following the latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports, released on November 14 and 15, 2023. The CPI data showed a monthly increase of 0.3% and an annual rise of 2.7%, while core CPI, excluding food and energy, rose 0.2% month-over-month and 2.6% year-over-year. Conversely, the PPI indicated a 0.2% increase in November, with annual producer prices up 2.7%, signaling potential stagnation.
Notably, household costs such as shelter rose by 0.4% in November, despite declining housing prices, highlighting a disconnect in the data. Other components such as used vehicle prices dropped by 1.1% and energy prices remained low, contributing to the deflationary concerns. The Federal Reserve is urged to consider these developments and potentially continue lowering interest rates to combat the risk of entrenched deflation.
Overall, with global dynamics such as a shrinking population in Asia and parts of Europe, there is apprehension that deflationary pressures could lead to stagnation similar to Japan’s lost decades, emphasizing the importance of monitoring these economic indicators closely.
