Friday, January 15, 2010

Inflation is Not an Issue...

Bloomberg details:
The consumer-price index rose 0.1 percent, less than forecast, following a 0.4 percent gain in November, Labor Department figures showed today in Washington. Excluding food and energy costs, the so-called core index also increased 0.1 percent.

Companies may have little success raising prices with unemployment projected to average 10 percent this year, the highest annual rate in seven decades. Federal Reserve policy makers have said they expect “subdued” inflation in coming months, allowing them to keep interest rates close to zero to help fuel growth.

“Consumer pricing pressures remain very subdued,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, who accurately forecast the rise in the core rate. “It gives the Fed further leeway to continue keeping rates where they are well through 2010.”
Looking at the details, inflation is concentrated in transportation (energy). Until pricing power moves into other areas (and labor), the Fed should have no concerns over keeping rates as low as they are.



Source: BLS

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