Several days ago we presented a graph (see Figure 1) with headline and core (CPI) inflation which showed a downward trend in the core price inflation. Yesterday the Federal Open Market Committee (FOMC) issued a press release also addressing inflation among other topics. Specifically, the FOMC said:
…. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued…
The Committee will … continues to anticipate that economic conditions, …, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
Hence, the FOMC is currently expecting that the surge in oil price will calm down and the CPI will fall back below the core CPI in the next few quarters. In Economic Projection, the expected central tendency of price inflation (PCE) in 2012 is between 1.2 and 2.0 per cent per year with the range 1.0 and 2.8 % per year.
We still expect that the core CPI inflation will fall below the zero line in 2012 and the headline CPI will rebound from its current higher level below the core CPI manifesting a deflationary period in the US [1].
Figure 1. The rate of price inflation as defined by the headline and core CPI.
Kitov, I. (2006). Exact prediction of inflation in the USA, MPRA Paper 2735, University Library of Munich, Germany
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