July 23, 2017

INFLATION HOPES ARE A BUBBLE:

No-show inflation poses conundrum for US Fed (AFP, 7/23/17)

In the normal course of events, as an economy recovers and hiring increases, that brings with it rising wages and inflation, which in turn prompts the central bank to hike lending rates to keep prices in check while still allowing economic growth to continue.

But despite nearly seven years of uninterrupted job creation and a very low unemployment rate of 4.4 percent, inflationary pressures and wage gains show little sign of life.

The central bank is running out of explanations. [...]

Inflation is not simply weak -- it is deserting the battlefield altogether.

The "core" measure of the Personal Consumption Expenditures price index -- the Fed's favorite inflation indicator -- has been below the central bank's two percent target for five years.

Last month, the headline PCE price index contracted for the second time in 2017.

The Consumer Price Index also came in flat in June after contracting in May, dragging the 12-month measure down more than a full percentage point in the last four months.

[Economist Diane Swonk] said another explanation is price competition among online retailers, which also has been persistent in other advanced economies like Japan and Germany.

Every megatrend mitigates against prices going up--technology, trade, immigration, demographics, etc.

Posted by at July 23, 2017 11:15 AM

  

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