US inflation – current momentum

It was only two years ago that American
economists were firting with the idea of
deflation in the current economic senarious.

Yet while that threat has receded,
normal levels of price growth have proved
surprisingly elusive despite the unparalleled levels
of central bank money printing since the financial
crisis. This can be attributed to the
rainbow element , now present in the
western economy.

Investor scepticism was reinforced by five
successive misses in core infation data in late
2017. No wonder yields on ten-year German
bunds and US treasuries are only a little above
their all-time lows.Low rates , inducing
usage , however as the rainbow element is present
in the economy , many shrewed investors remain
unconvinced that the rates reflect economic
reality.

A change appears close at hand which
may make 2018 the year that inflation finally picks
up. First, the year starts with good momentum.
Following November data, core inflation has run
at an annualised rate of 1.9 per cent over the past
three and six months, two-tenths higher than the
annual rate. In addition, the three-month
annualised rate of the Fed’s preferred infation
measure, the core personal consumption
expenditure index, has risen to 1.9 per cent,
quadruple the level earlier in the year, following
the removal of some one-of factors that held
down prices.

The irregularity of money growth , low rates
and minimal consumption coupled with the US’s
realization that economic migrants , can and do
affect the economy is now begining to show in the
data.