Inflation At Its Lowest Level in Many Years, So Why Is That Bad?

As reported in this November 17th, 2011 CNN Money article by Annalyn Censky, we see that core inflation increased, but it was at the lowest rate since 1957.  Over the last 12 months, the Consumer Price Index rose by 1.2%, but after taking out food and energy, the core CPI only rose by 0.6%.  Of course, consumers like prices remaining low, however this does not bode well for our wages or job prospects. 

In order to create jobs, businesses need to be able to raise prices in order to improve profit margins.  With the recent recession taking a toll on consumers, businesses have not been able to raise prices even though they have been hurt by rising input prices.  Overall, sales of new and used vehicles, apparel and even tobacco were down.  Even though commodity prices were rising, sluggish buying activity prevented firms from passing those rising costs to consumers.  Until businesses are able to raise prices and boost profit margins, we might not see further improvement in the job market.

It must also be noted that consumers did not always feel the impact of historically low inflation.  This is because medical costs and gasoline prices rose and these items are measured in core inflation.  In addition, there was also a small increase in food prices, too.