Thursday's US consumer price index report showed a meaningful divergence between goods and services inflation

Thursday's US consumer price index report showed a meaningful divergence between goods and services inflation. The U.S. seems to be in a new part of the inflation cycle. Services inflation is stabilizing but Goods inflation is in a new down cycle. This points to a normalizing U.S. domestic economy but more weakness and vulnerability overseas. Here's why: Goods inflation is exposed to global trade. When China was flooding the world with low cost goods in the 1990s and 2000s, it put immense downward pressure on consumer goods prices and held down the overall U.S. inflation rate. Unlike the 1990s and early 2000s, the latest downdraft in goods inflation is likely being driven not so much by an influx of cheap goods produced by low-cost emerging market labor, but by a slowdown overseas driven by over investment in emerging markets during their boom. And that's holding down commodities prices. (VIEW LINK)


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