Posted by: Joe Weber on June 17
Despite worries that efforts by Washington and the Federal Reserve to stimulate the economy will bring inflation roaring back, it will not be a top priority for Fed policymakers until a “convincing economic recovery” is in place, economists at Northern Trust argue. So far, they suggest, we’re not there.
Restrained inflation figures, reported by the government, suggest government policymakers have little to fret about on the price front, Northern Trust economist Asha G. Bangalore says in a June 17 analysis. The government report, which helped to temporarily push up Treasury bond prices, makes it less likely that the Fed will want to hike its main lending rate above the zero to 0.25% range.
“A convincing economic recovery and strong expectations of a growing economy are necessary for the Fed to consider suitable actions to prevent inflation,” Bangalore writes. “At present time, the enormous slack in the economy supports expectations of subdued inflation data, which is what we see at the moment.”
While the Consumer Price Index rose 0.3% in May, it has fallen some 1.3% over the last 12 months, the Bureau of Labor Statistics reported. The bureau noted that this is the largest slide since April 1950 and is due mainly to a 27.3% decline in energy prices, even including a 0.2% rise in energy costs in May.
The prices of some goods and services have clearly risen, though only modestly. Even while energy prices are down for the last year, gasoline prices did rise 3.1% in May, used cars cost 1% more overall, new cars climbed 0.5% and medical care gained 0.3%. But apparel and food got slightly cheaper, each dropping 0.2%. Food prices marked their fourth monthly decline in May.
The good news on the inflation front temporarily drove up Treasury bond prices, particularly in longer-term bonds. But prices retreated as concerns about more government involvement in the financial system arose. Longer-term bonds had been under pressure as investors feared inflation over time would eat away at their gains.
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