Now, our friend Robert Romano, writing for Americans for Limited Government explains how the drop in the Consumer Price Index and the drop in the Producer Price Index means inflation is falling — and appears poised to continue falling. As Mr. Romano explained:
Producer prices dropped 0.4 percent in March, following consumer prices dropping 0.1 percent, according to the latest data from the Bureau of Labor Statistics, amid continued drops in food and energy prices, particularly on the producer side, which saw 2.1 percent and 4 percent drops, respectively.
These price drops came prior to President Donald Trump’s April announcements of reciprocal tariffs (now paused for most countries) and 10 percent tariffs globally except for China, which is currently seeing a 145 percent tariff. Since then, there have been further drops in commodities prices including oil that factor into producer prices. Light sweet crude oil has dropped from $72 a barrel down to $60 a barrel, a 16.6 percent drop.
All of which means inflation is falling — and appears poised to continue falling — in spite of repeated predictions by opponents of President Donald Trump’s tariffs of both parties that prices would rise in response to his tariffs on Canada, Mexico, China and the rest of the world.
Demand has also cooled as American households maxed out their credit, total consumer credit owned and securitized having declined by 1 percent the past 12 months, according to data compiled by the Federal Reserve.
Interest rates overall are down since January, with 10-year treasuries moving from 4.8 percent down to about 4.5 percent now. 2-year treasuries are down from 4.4 percent at the beginning of the year to 3.9 percent now as of this writing. That shows inflation expectations are largely dropping.
Gold, after initially dropping after the April 2 announcement, has been rising, showing signs of being a safe haven as it did in 2009 and also in 2020 and 2021. During the heart of the financial crisis and the Covid economic lockdowns, inflation was not a going concern, but gold kept and increased value.
These are if anything recession signals historically — years in the making — that tend to happen at the end of economic cycles following peak inflation.
It could be we already had the recession or are in one, but it hasn’t been booked yet or that there is still one on the horizon. Generally, rising unemployment, along with collapsing consumer credit, is what usually happens as inflation slows down along with demand after the economy overheats as it did in 2022.
Politically, inflation has been slowing, it just didn’t slow down fast enough to help Joe Biden and Kamala Harris in 2024, who had to run on a record of inflation outpacing incomes.
As for the short-term gyrations in U.S. bonds with rates rising the same time stocks were selling — a worrisome sign — are interest rates on U.S. bonds rising and the dollar weakening short term because of inflation? Let’s look overseas.
But generally, lower interest rates abroad indicate lower inflation expectations overseas, not higher. It also indicates lower growth expectations.
All of which could mean that the U.S. economy if anything should be getting on a recession footing. If U.S. bonds are having trouble, the Fed might have to step up its buyer of last resort status — it has been shedding treasuries to soak up inflation since 2022 by more than $1.5 trillion and mortgage-backed securities by more than $500 billion. If the Fed resumes bond buying, that will tell everyone a lot about the direction of prices. As usual, keep an eye on jobs and also rising energy and food production, but this could mean mission accomplished in terms of killing inflation. That’s good news.
Robert Romano is the Executive Director of Americans for Limited Government Foundation. This article was originally posted here appears through the kind permission of Americans for Limited Government.
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