Federal Reserve officials are clearly divided on the inflation outlook.
The hawks still believe a spike in inflation poses the greatest risk to the US economy, given the easy monetary policy that is in place. Meanwhile, the doves, emboldened by recent poor economic data, are increasingly concerned that the US has entered a disinflationary dynamic that could ultimately result in damaging deflation.
The release of the labor department’s consumer price index for the month of June, unfortunately offers something to nibble on for both camps, but no clear direction on who is right.
In fact, while the year-on-year increase in the core CPI – which strips out volatile food and energy costs – is still stuck at historic lows of 0.9 per cent, the monthly increase of 0.2 per cent was more than expected by economists, suggesting that disinflation may be bottoming out. Read more