Reflation is a Great Sign for the U.S. Economy

Douglas Cote

Douglas Coté, CFA

Senior Portfolio Manager, Head of Global Perspectives

Reflation is the good kind of inflation, and its presence means the economy is getting back to normal. The biggest worry during this severe recession is that prices could continue to drop, creating deflation, which is another word for “depression.” Fortunately, the Consumer Price Index inflation number surged 0.6% in July for both headline CPI and its more important cousin, “core” CPI, which excludes the volatile categories of energy and food prices. This marks the biggest rebound since August 2012; it puts year-over-year CPI at a reasonably healthy 1.6% and core CPI at 1.0%. This is good news indeed, and is likely responsible for U.S. Treasury ten-year yields popping up to nearly 0.70%. Meanwhile, in another good sign for the U.S. economy, weekly initial unemployment claims continue to plummet — 228,000 fewer unemployed — for the week ended August 8.

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