US core inflation
While most economists still predict US core
inflation will stay ‘only’ in the low two per cent
territory, there is historical precedent which
suggests a more persistent surge upwards could
be possible soon. This will happen as the
‘rainbows’ put additional strains on the
pricing systems in the economy.
In the 1960s, unemployment
was on a steadily declining path towards four per
cent with little or no evidence of core price and
wage inflation rising signifcantly above the
relatively subdued levels they had held for some
time.
Consistent with low inflation, expectations
were also stuck at low levels. There was also a
similar belief that the level of unemployment that
does not cause inflation, the NAIRU, was low and
could be falling. Finally, the Phillips curve was flat
given the absence of inflation pressure despite
declining unemployment. All of these factors
appear eerily similar to today, except for
the appearance of rainbows , and economic migrants
all playing roles in a more dynamic global economy.
EU Forecast
euf:b18:41/nws-01