Inflation Slows, A Little

The OECD reports that inflation among its members slowed a very small amount in June. The agency’s Consumer Price Index report showed that “Compared to the previous month, consumer prices in the OECD area decreased by 0.1% in June 2011. They fell by 0.7% in Canada, and by 0.1% in Japan, the United Kingdom and the United States, while they rose by 0.1% in France, Germany and Italy.”

The top line results hid the rise in energy costs, which, if they continue upward could damage an already fragile global economy. While CPI among all OECD nations was up only 3.1% compared to June 2010, fuel costs rose by 13.6%.

Much of the rise in the cost of energy came among nations that can afford it the least. Spain’s energy costs rose 15.4% in June. In Greece, they were up 13.4%. The U.S. was hurt the most by energy cost inflation, with a 20% increase over last year. That is in contrast to the 1.6% inflation rate for “non food, non energy” in America.

The threat of oil prices to the global economy has been forgotten to a great extent due to the deficit and debt problems in the EU and U.S. Crude prices have dropped back to $93, well below $110 in late April. Those numbers do not take into account the fact that oil prices were well below $50 three years ago. Oil at $90 plus is still a huge drag on the economy both in the U.S. and abroad.

Even as the growth of the Western economies slows to a standstill, the price of crude may not drop swiftly as it has in most periods of weak growth in the past. China, India, Brazil, and Indonesia continue to consume more oil by the year. OPEC has shown no interest in increasing production.

The headline about the OECD report is that inflation slowed a little in June. But, by the most important standards, it did not slow at all.

Douglas A. McIntyre