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Economists have struggled to understand the phenomenon, but largely believe that inflation is held back by a cocktail of aging populations, changing consumer expectations and limited pricing power in a globalized world where consumers can. search online to compare prices.
Measures of market-based inflation expectations hover around 2 percent, and the outlook for consumer inflation has declined slightly over the past decade, although one indicator has risen in a recent reading. If buyers don’t expect higher prices, businesses may find themselves unable to raise them, so whatever people anticipate may turn into reality.
It is also difficult to see where a large and sustained rise in prices would come from, analysts said.
Airfares, clothing prices and hotel prices have all been hit in 2020 at the depths of the pandemic, and they are likely to jump sharply as the economy reopens and consumers with cash in. their pockets are taking vacations and renovating their wardrobes, said Alan Detmeister, a former Fed inflation expert who now works at UBS bank.
Still, the prices of goods that rose as workers moved to home offices – from the category that includes laptops to that that follows cars – could pull back, weighing on overall earnings. Categories that matter a lot to the overall index, like rent and health insurance, are both moderate and slow.
In any case, a temporary rebound in prices is not the same as an inflationary process in which price increases continue month after month.
Even if prices rebound temporarily, the Fed has pledged to be patient in its thinking about inflation. Over the past few years – including under Ms Yellen’s watch – he has raised interest rates before price hikes really pick up to avoid potential overheating. The central bank’s new framework, adopted last year, calls on policymakers to aim for a period of inflation above 2% so that it meets its target on average over time.
And in addition to stabilizing prices, Congress also instructs the Fed to try to achieve as many jobs as possible. Charles Evans, chairman of the Federal Reserve Bank of Chicago, said earlier this month that $ 1.9 trillion in government spending could help the Fed meet its inflation and labor market targets faster.
“I find it hard to see the scale of this situation leading to overheating,” he said.
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