US inflation may buoy Fed

23 Nov 2015 | Author: | No comments yet »

Rising United States consumer prices further support rate hike views.

The Office for National Statistics said consumer prices declined 0.1 percent from a year earlier, matching the median forecast of economists in a Bloomberg survey. It was the second straight month that annual core prices were near the Fed’s target of 2%, although the central bank uses a different inflation measure that has been running lower.

The effect of tumbling oil prices can only last a year unless the price keeps falling, at which point any rebound will start getting counted in the figures – at that point, the Bank might feel something needs to be done to keep inflation in check. Fed officials have been carefully monitoring the economy for an upturn in inflation as part of its plan to eventually raise short-term interest rates from historic lows. Temporary deflationary pressures in areas such as energy and food are not seen as being as damaging to consumer inflation expectations and spending habits which is why the Fed is not overly concerned by the lower inflation readings. While weak global growth and a strong dollar have held down the cost of commodities such as fuel, Americans are paying more for services including rents and medical care.

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