Cause For Less Concern About Deflation

By John S. McClenahen Although Federal Reserve Board Chairman Alan Greenspan and his colleagues last week said deflation, a persistent decline in prices, was likely to be their predominant concern for the foreseeable future, the cause for concern appears to be lessening. Last Friday the U.S. Labor Department reported that its Consumer Price Index (CPI) rose at a seasonally adjusted rate of 0.2% in July, the same rate of increase as in June. The so-called core CPI, which strips out volatile price changes in food and fuel, also rose 0.2% in July after being flat in June. Although the core CPI rate of increase in July was twice the 0.1% economists generally expected, both it and the overall CPI rate of increase last month show a modest amount of inflation exists in the U.S. economy, not a generalized pattern of deflation.

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