Tuesday, January 18, 2011

Still Too Much Capacity

The below chart shows that capacity utilization in the system is slowly recovering, but remains remain very low.

This in part explains why core inflation remains muted, even with the recent commodity spike.

Source: Federal Reserve / BLS


  1. The correlation seems to be quite good most of the time, but do you have any idea, why it reversed in the mid-90s?

  2. to rephrase... why wasn't there more inflationary pressure in the mid 90's when capacity utilization was so high. my thought is that we were importing deflation from abroad (china coming on / cheap commodities).

    would love to hear other thoughts...