US CPI rises but core unchanged

The US Labor Department reported yesterday that the consumer price index (CPI) rose 0.5 percent in April. Core CPI, however -- excluding food and energy -- was unchanged. The macroblog has more details, including the following comment: "That zero in the ex food and energy column was a bit of a surprise, but in the end it reflected, in part, a reversal of some strangeness in March."

In his latest investment outlook, Bill Gross of PIMCO gives his take on the inflation outlook:

[I]n combination with a globalized free trade-based economy exhibiting a surfeit of cheap Asian labor, it will be difficult to generate U.S. inflation higher than our current 3% even if interest rates fall further. If 3% inflation is all we can get from the past 5-years’ asset inflation, it’s hard to believe that we get more from what’s left. The potential to reflate via interest rates is nearly over... Continued disinflation not reflation, then, will rule our fragile future kingdom, with the potential for 1-2% CPI prints in most years between 2006 and 2010 throughout much of the global economy.

Gross is possibly an optimist. Bill Cara is contemplating deflation. In a recent post, he says that "deflation vs inflation is probably the likeliest event longer-term (say a year out)".

If the CPI does threaten to deflate, though, US politicians can always try to force it up by bashing China over currency and textiles. Otherwise, China's industrial juggernaut will continue to expand, like it did in April, when industrial output rose 16 percent from a year ago, accelerating from March's 15.1 percent rise.

Brad Setser has more on the latest round of China-bashing.