This year looks different for inflation’s course in US
Laid low for most of the past decade, US inflation is showing signs that it might begin to stage a comeback in 2018.
Among the forces coalescing to propel prices higher: the strongest domestic and international economies since the start of the decade, the lowest unemployment rate in 17 years, oil’s return above $70 a barrel, a softening dollar and still-easy monetary policy.
Perhaps most crucially, either in response to the tightening labor market, shrinking capacity or President Donald Trump’s tax cut, American companies from Wal-Mart Stores Inc. to Fifth Third Bancorp are boosting pay packets. And almost 20 states from Florida to Washington began the year raising their minimum wages.
The upshot is some economists are declaring a turning point in which inflation this year will approach or breach the Federal Reserve’s 2 per cent target, the holy grail for a central bank that has raised interest rates five times since December 2015 on a belief price pressures are coming. Airfares, gym memberships and car tuneups are among the goods or services now turning costlier. “With continuing high growth and low unemployment, inflation should go above 2 per cent during part of this year,” said Kenneth Rogoff, a professor of economics at Harvard University and former chief economist at the International Monetary Fund.
Investors are taking notice: Yields on the two-year US Treasury note hit 2 per cent on Friday for the first time since 2008. The assumption is accelerating inflation means the Fed will continue raising rates, perhaps more quickly than they had previously thought.
The rising cost of living could be a global phenomenon. Bruce Kasman, chief economist at JPMorgan Chase & Co., reckons with 80 percent of the 33 countries his team monitors now growing above their long-term trend, worldwide inflation excluding food and energy — the socalled core rate — will jump to around 2.2 per cent this year.
The US has been here before. This time last year, in fact, economists were predicting a rebound in US inflation only for it to fail to materialize amid plunging mobile phone-service charges and other drags ranging from weak apparel prices to a pullback in housing costs.
Excluding volatile fuel and food, the Fed’s preferred index stood at just 1.5 per cent in November, which suggests it will close out 2017 well under 2 per cent. Price gains have been below the Fed’s target for almost all of the past five years.
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Via:: Economic Times – Stocks