Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Fear Inflation, Not Deflation

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

The market let out a sigh of relief yesterday as consumer prices -- measured by the CPI -- rose for the second month in a row. Reporting a seasonally adjusted 0.4% increase in February, fears that our ailing economy was spiraling into a period of deflation were eased. However, Fools should read between the lines for a more accurate analysis.

Three categories boosted the overall index level: energy, apparel, and transportation.

Digging deeper, energy prices jumped 3.3% on top of a 1.7% increase last month. Gasoline prices rose 8.3%. I'm unconvinced this two-month trend is indicative of a nondeflationary economy, as energy prices fell dramatically during the backend of 2008. The energy index is still 29.2% lower than it was during its July 2008 peak, and the gasoline index is down 44%.

Apparel contributed a 1.3% increase. However, this was only because retailers such as Abercrombie & Fitch (NYSE: ANF  ) , Macy's (NYSE: M  ) , and Talbots (NYSE: TLB  ) have finally sold off holiday inventory at deep discounts and are in the process of turning stores over to newer and pricier spring merchandise.

Perhaps the most suspicious increase of all was the 1.9% increase in the transportation category. Vehicle manufacturers like Ford (NYSE: F  ) and General Motors (NYSE: GM  ) have reported the worst sales seen in the last several decades, and heavy incentives are being implemented to attract consumers.

In short, I don't find the overall 0.4% increase meaningful. Peeking behind the figure reveals price increases that are neither sustainable nor indicative that deflation is out of the question.

Overall, I'm puzzled by the market's concern for deflation. Personally, I believe we may experience a slightly deflationary environment in the short run. I think it's inevitable as we allow the recession to run its course through the economy. However, what the market and our government really need to be fearful of is the inflationary road in the long run, after the effects of the Fed's monetary and stimulus efforts trickle through the economy.  

Kristin Graham does not own shares of any of the companies mentioned in this article. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 855679, ~/Articles/ArticleHandler.aspx, 10/23/2016 12:13:15 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
ANF $15.75 Up +0.01 +0.06%
Abercrombie and Fi… CAPS Rating: *
F $12.02 Up +0.05 +0.42%
Ford CAPS Rating: ****
GM $32.04 Up +0.29 +0.91%
General Motors CAPS Rating: ***
M $36.51 Up +0.64 +1.78%
Macy's CAPS Rating: **
TLB.DL $0.00 Down +0.00 +0.00%
The Talbots, Inc. CAPS Rating: *