Most investors and savers worry about inflation through time. The problem is that deflation may be even worse. The latest round of import and export prices for the month of April confirms that we are not only nowhere close to inflation, we may be skating closer and closer to a deflationary period.
Import prices fell by 0.4% in April on a month-over-month basis, also much lower than the 0.4% gain that was expected by Bloomberg. Year-over-year, the drop was only 0.3%. If you exclude energy prices, the reading would have been flat — perhaps not as bad as the headline, but still no inflation.
April’s export prices fell by 1.0% on a monthly basis, after a 1.0% gain in March, much lower than the 0.2% gain expected by Bloomberg. Year-over-year, this was up, but only by a paltry 0.1%.
What investors should understand is that these numbers can be very volatile from month to month. There are also very many moving parts. Even if prices did fall overall, energy prices remain high and many food costs have gone through the roof of late.
This is just one component of the inflation cycle, but Fed Chair Janet Yellen (and Ben Bernanke ahead of her) mentioned that inflation is just not as high as their target may call for. On more than one occasion, we have said to be careful what you wish for when it comes to trying to add fuel to the inflation fire. That being said, a deflationary pricing environment is worse than inflation.
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