Why is inflation in America so low?

ALMOST TEN years into the recovery from the financial crisis, American monetary-policymakers are still finding that inflation is strangely quiescent. Every time price pressures seem to build, they then dissipate. The latest peak was in July 2018. Inflation as measured by the personal consumption expenditure (PCE) index, which the Federal Reserve tries to pin at 2%, was at 2.4%, and, in a rare heated moment—by the standards of the past decade—consumer-price inflation hit 2.9%. But since then, even as unemployment has stayed low, both measures have sagged to below 2% once again.

The absence of stronger inflationary pressure has been a little bruising for the Fed. It has long predicted that upward price pressures would result from the economy—and in particular, the labour market—pushing against its natural limits. In preparation for that event, it has raised interest rates nine times since December 2015. Along the way it has explained dips in inflation as temporary. But self-doubt has grown all the while. Weakness in inflation is one reason that rate rises are on hold today, with Jerome Powell, the Fed’s chair, emphasising the need for patience.

Inflation is notoriously noisy, and therefore tricky to forecast. Energy prices, which are volatile, are responsible for much of the fall since last July. Core PCE inflation, which...

via The Economist: Finance and economics Business Feeds

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