Economists have struggled to understand the phenomenon, but they largely think that inflation is being undermined by a cocktail of aging demographics, changing consumer expectations and limited price power in a globalized world where consumers can search online to compare prices.
Market-based inflation expectation measures fluctuate about 2 percent, and the outlook for consumer inflation has declined slightly over the past decade, although one measure has recently shown. If buyers do not expect higher prices, it is possible that companies can not increase it, and thus everything people expect can drive reality.
It is also difficult to see where a large and sustained rise in prices would come from, analysts said.
Airfares, clothing prices and hotel prices hit the depths of the pandemic in 2020, and they are likely to jump sharply if the economy reopens and consumers holiday with money in their pockets and refurbish their cupboards, Alan Detmeister said. a former inflation expert at the Fed who now works at the bank UBS.
The price of goods that got a boost when workers moved to home offices – from the category that includes laptops to the one that tracks cars – could drop, which could weigh the overall profit. Categories that are very important for the overall index, such as rent and health insurance, are both muted and slow.
In any case, a temporary jump in prices is not the same as an inflationary process in which price increases continue month after month.
Even if prices bounce temporarily, the Fed has promised to be patient in the way it thinks about inflation. In recent years – also under the supervision of me. Yellen – it raised the interest rate before the price increases really increased to prevent potential overheating. The new central bank framework, approved last year, calls for policymakers to aim for a period of higher than 2 percent inflation so that it achieves its goal on average over time.
And in addition to stabilizing prices, Congress is also giving the Fed the task of achieving maximum employment. Charles Evans, president of the Federal Reserve Bank of Chicago, said earlier this month that $ 1.9 billion in government spending would have the potential to help the Fed meet its inflation and labor market goals faster.
“I find it difficult to see the magnitude of this leading to overheating,” he said.