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Don’t get me wrong – any signs that U.S. inflation is cooling are welcome, and some can be found in today’s official report containing data on the Federal Reserve’s preferred gauge of consumer price increases. At the same time, for two main reasons, I’d recommend at least curbing enthusiasm about the inflation outlook.

The first concerns the baseline effect I’ve been writing about since prices began surging early last year. The second has to do with the likely relationship between the new (April) results for the price indexes for personal consumption expenditures (PCE) and the sagging rate of American economic growth.

But let’s first examine the reasons for inflation optimism contained in the new Commerce Department numbers (which are one of two data sets on consumer price trends produced by the federal government, the other being the Labor Department’s Consumer Price Index, or CPI).

The biggest is the steep drop in the monthly overall PCE inflation rate in April. It fell last month to 0.2 percent from 0.9 percent in March. That was the weakest such figure since the 0.1 percent increase in November, 2020 – when the CCP Virus’ first winter rebound was gathering steam, and the torrid economic recovery from the pandemic’s initial arrival earlier that year was slowing dramatically.

Even more impressive, the fall-off between March and April overall PCE inflation (0.7 percentage points) was the steepest since December, 2011 and January, 2012 (0.8 percentage points).

Oddly, though, no change was recorded in the monthly rate of core PCE inflation (which, like its CPI counterpart, strips out food and energy prices because they’re supposedly volatile for reasons unrelated to the economy’s fundamental inflation prone-ness). April’s sequential rise was the same as March’s – 0.3 percent. Still, it’s down from the 0.5 percent neighborhood in which core PCE stayed from October, 2021 and this past January.

The year-on-year PCE inflation rates weren’t devoid of good news, either, but it was less impressive than the latest monthly overall PCE result precisely because of that baseline effect and because of the overall economy’s dreary recent performance.

As known by RealityChek regulars, the annual figures are followed more closely than the monthlies because they show trends over a longer period of time, and therefore are less likely to be thrown off by random short-term fluctuations. As also known by the regulars, the high annual inflation figures of all kinds for much of last year were somewhat misleading because their point of comparison – i.e., their baseline – was the set of annual figures for pandemic-depressed 2020. And these were so unusually low. For many months, therefore, even a simple return to normal price increases was bound to show up as a major jump.

But the baseline for this year’s annual figures is no longer 2020 – when inflation was practically gone and even turned into deflation for a stretch – but 2021, and its artificially high (but still high) inflation rates.

So the slowdown in last month’s annual overall PCE inflation (from 6.6 percent to 6.3 percent) shouldn’t be overlooked. But it’s crucial to keep in mind that it’s coming off an April, 2020-2021 overall PCE increase of an already elevated 3.6 percent. Moreover, that April, 2020-21 rate was not only lofty, but accelerating. It’s March counterpart was only 2.5 percent.

Ditto for the slowdown in annual core PCE inflation from 5.2 percent in May to 4.9 percent in April. It’s certainly better than a speed up! But its baseline figure is last April’s warm-ish 3.1 percent, and that figure was much warmer than March’s two percent even – a pace the Fed views as ideal.

Now for the second reason for caution in cheering the new PCE results: They’re surely coming down because the economy’s growth rate has downshifted significantly. In the fourth quarter of last year, it shot up by 6.9 percent at annual rates after inflation. In the first quarter of this year, the gross domestic product (GDP) actually shrank – by 1.5 percent annualized in real terms. And the pretty reliable forecasters of the Atlanta Federal Reserve Bank believe growth in the second quarter will rebound only to 1.9 percent by the same measure.

Students of the economy call the combination of sluggish growth and strong inflation “stagflation.” Unfortunately, I think that’s the likeliest outcome for America’s foreseeable future being signaled by the new PCE results.