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By Jason Stipp | 06-23-2011 12:40 PM

Inflation Peaking

Recent moderation in commodity prices bodes well for milder inflation and the economy.

Jason Stipp: I'm Jason Stipp for Morningstar.

After a worrisome few months of data this spring, some commodity prices have begun to pull back, which begs the question, "Has inflation peaked?"

Here with me to offer some details on that is Morningstar's Bob Johnson, director of economic analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, Bob, we have had some recent data about inflation--the Consumer Price Index--what has that indicated to you and does that give you some sense of whether we've seen the worst of inflation?

Johnson: I think we have, and I want to be clear about it. I think we really have seen the top on inflation, and I think we've gone from 0.5% monthly increase, and then the following month we saw 0.4%, and then the latest month we have data for is May, and that's down to 0.2%, and given what we've seen so far, the number could be even lower for the month of June.

Stipp: So certainly some moderating growth in that inflation rate over the last few months. What is current data telling you about some of the different inflation categories? What can you glean from that?

Johnson: ... A broad range of the commodity complex has come down. In fact, let's start at the very top, if you look at the UBS Commodity Index, which is probably a little less weighted to oil than some of the other indexes, which is why I like it, and it's down about 12% from peak to spring. So, that's a pretty decent number to be down, and as those commodities come in, that eventually moves down final prices that we see in the CPI, so it's little bit of a precursor, if you will.

Stipp: And I know that at the gas pump we've seen some moderation in prices. Are we seeing that there is a significant pullback on the refined products?

Johnson: You can look at a couple of different surveys. The one that everybody can look at every day is the AAA gas price survey, which anybody can get online, and that's gone from high of $3.98 just a month and a half ago to this morning when I looked, it was at $3.61 a gallon. So, that's roughly a 10% decline in a month and a half, and that's a healthy decline. Now we are still above where we were a year ago by a considerable margin, but it's backed way off to the point where maybe I think it will help the consumer.

Stipp: And it's not just the current data that have indicated some moderation in inflation. You also look at some forward-looking measures of where prices might go, and those are also seeming to indicate that inflation might be leveling off here.

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