The biggest economic news of the past week was the release of the inflation number for April. The sight of easing consumer prices in the midst of what seems to be a general strengthening of the economy brought to mind an expression that was often used to describe the economy of the late 1990s: the "Goldilocks" economy.
The Goldilocks economy was not too hot or not too cold, but just right. What that really meant was that the U.S. was able to have steady growth without inflation ever getting overheated. Could the current economy be starting to settle into this type of ideal scenario?
On May 16, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) declined by 0.4 percent in April. While easing inflation is good, normally such a significant drop in prices would bring concerns of deflation as a sign of economic weakness. However, coming amidst generally positive signs of economic growth, this inflation relief is seen simply as removing a potential problem from the economic equation -- at least for the time being.
The challenge for the Federal Reserve has been to apply aggressive economic stimulus without sparking inflation. Recent indications are that this may finally be working, though there should be one caution about inflation. As is often the case, the key to April's CPI number was the energy sector, which saw generally declining prices in April. So far though, oil prices have risen in May. It remains to be seen to what extent that will carry over to inflation as a whole.