Persistently low inflation figures continue to confound US policy makers
Today, the Labor Department will publish December’s consumer price index data, which is expected to show an overall increase of 0.2%—less than November’s 0.4% rise.
That figure would be concerning for the US, with the core index for the year expected to have grown by 1.7%—well below the Federal Reserve’s 2% target. Low inflation limits the Fed’s ability to manoeuvre monetary policy in the case of a recession.
With unemployment at a historical low of 4.1% and the economy strengthening, the persistently slow inflation figures have confounded US policymakers. Consequently, the lack of upsurge in consumer prices may see the Fed reassess its plan for three interest rate hikes this year, which could send inflation figures plummeting.
Considering the likely uncertainty produced by today’s figures, expect all eyes to be on next month’s inflation data. Following the Trump administration’s tax reform bill, many US companies have announced plans to increase wages and capital spending, which could drive up inflation. If inflation figures continue to stagnate, the Fed will need to reconsider its monetary policy.
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