The June inflation report was even better than it looks.
Don’t get us wrong. The headline figure was glorious. The consumer price index fell by 0.4 percent for the month, the biggest decline since the big dips in March and April of 2020, when the economy was reeling from the pandemic shutdown. Prior to that, you have to go all the way back to January of 2015, when the CPI fell 0.7 percent.
Not surprisingly, gasoline prices played a big role in each of those declines. The pandemic triggered a global collapse in demand for oil, sending energy prices crashing. Back in 2015, the price of Brent crude fell to around $50 a barrel after OPEC decided to try to crush U.S. shale expansion by flooding the market with supply even as demand expectations weakened due to economic softness outside of the United States. Japan’s economy had gone into contraction, Europe’s economies were contracting or stagnating, China’s property market was buckling, Brazil was in contraction, and other emerging economies were tottering.
If we reach even further back in time, there were significant monthly declines in the late summer and autumn of 2008 as the global financial crisis took hold. Prior to that, the consumer price index fell 0.5 percent in September of 2006 when oil and gas price prices fell significantly as the summer driving season ended, and there was no repeat of the Katrina disaster that sent prices soaring the prior year. And the reversal from the post-Katrina energy price surge in 2005 also triggered a 0.5 percent decline in the CPI.
The history books do not show us a similar decline until we flip the pages back to 1986. You’ll never guess what was driving that. Saudi Arabia had stopped defending the price of oil after years of OPEC losing global market share, and the price of a barrel of oil was cut nearly in half. This was a boon to the U.S. economy overall but punishing for Texas and other domestic oil producers, triggering local economic contractions.
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