Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

U.S. March Consumer Price Index, Fed Finds Itself Between a Rock and a Hard Place

Economics / Inflation Apr 16, 2011 - 12:27 PM GMT

By: Asha_Bangalore

Economics

Best Financial Markets Analysis ArticleThe Consumer Price Index (CPI) rose 0.5% in March, following a similar increase in February.  The 3.5% increase of the energy price index and the 0.8% jump in food prices made up three quarters of the overall increase of the CPI in March.  On a year-to-year basis, the CPI has risen 2.7% in March, putting the three-month annualized gain at 6.1%.  The core CPI, which excludes food and energy rose 0.1% in March, which yields a three-month annualized increase of 2.0%.  The acceleration of these inflation measures in a short time period is noteworthy (see Chart 1). 



 
Inflation measures are moving up consistent with the objective of the quantitative easing program in place. The goal was to nudge prices upward gradually in line with growth of the economy.  But, food and energy prices have shot up sharply in a short span of time while the pace of economic growth and employment gains remain significantly short of the Fed's full employment mandate.  Immediate tightening of monetary policy to curtail inflation would setback economic activity.

In 2008, when oil prices rose sharply, the Fed was able to select economic growth in inflation-growth debate because a severe financial crisis was underway and the prospect of significantly weak economic conditions was becoming clear.  At the present time, the FOMC doves still have the upper hand and can cite a litany of evidence to make their case.  Although, the unemployment rate has declined to 8.8%, it is holding at an elevated level and real GDP is noticeably below the potential level (see Chart 2).  Under these circumstances, the Fed can continue to view food and energy prices as "transitory."  But, the call will get more challenging if food and energy prices continue to climb and worrisome spillover signs emerge. 



Inflation has once again emerged at the top of the worry list of central bankers.  The latest inflation reading (+2.7%) in the Euro area exceeds the policy target of 2.0%.  Latest inflation numbers from China (+5.4%) and India (+8.9%, wholesale prices) have raised expectations of another round of tightening of monetary policy conditions in the near term. 



From the details of the US CPI report, the energy price index has moved up 23.1% since June 2010.  Among the components of the energy price index, gasoline (+5.6%), heating oil (+6.7%), and electricity (+0.7%) posted gains and natural gas prices declined 1.4%.  In addition to higher energy and food prices, prices of several other items also moved up during March.  Shelter costs (+0.1%), prices of new cars (+0.7%), used cars (+0.8%), airfares (+0.4%), and medical care (+0.2%) rose in March, while apparel prices fell 0.5% and recreation costs held steady. 


Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2011 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules