Newspaper article The Christian Science Monitor

Inflation Remains Quiet, Keeping Pressure off the Fed ; Lack of Price Hikes Suggests Policymakers Can Keep Interest Rates Low through Spring

Newspaper article The Christian Science Monitor

Inflation Remains Quiet, Keeping Pressure off the Fed ; Lack of Price Hikes Suggests Policymakers Can Keep Interest Rates Low through Spring

Article excerpt

The nation's inflation rate remains frozen in place - at practically the lowest level in forty years - at a time when the economy as a whole is thawing out quickly.

Economists believe this low inflation rate - at about a 2.5 percent annual pace - should help keep the Federal Reserve from raising short-term interest rates at least through the rest of the spring.

This week, the bank said it had moved from concern about the recession to a "neutral" position on the economy.

The nation's central bank is not likely to get worked up over yesterday's consumer price index (CPI) numbers, which show that inflation rose 0.2 percent in February after a similar increase in January. The so-called "core rate" of inflation - without the more volatile food and energy components - rose 0.3 percent.

"Inflation still looks pretty tame," says Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. "Inflation is steady at a low pace."

A boon for wages

The modest inflation rate has been giving consumers a real increase in incomes.

Last year, paychecks rose a little more than 4 percent. Consumers, with money in their pockets, helped to keep the recession very mild, says Robert Gay, head of fixed-income research at Commerzbank Securities in New York.

But Mr. Gay says the Fed is concerned this windfall may not continue, which may slow the economic recovery.

For example, last year energy prices fell. The result, in effect, was like a tax cut, giving consumers more money to spend. This year, as the US economy bounces back from recession, energy prices are starting to edge back up.

'Leading indicators' flat

The uneven nature of the recovery was reflected in another report yesterday. The Conference Board, a business group based in New York, reported that its index of leading economic indicators was unchanged in February after rising for four consecutive months recently. …

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