Economic analysts are predicting a consistent inflation picture for the United States. I think they’re all very much looking forward to the release of the Consumer Price Index (CPI) data for December. With the new, upcoming CPI data, we expect the year-over-year inflation to be running at a stable 2.7%. This rate is now consistent with what we’ve been seeing in prior months. That anticipated stability in inflation is very important. Specifically, it will help illuminate the current state of our economic recovery and inform the Federal Reserve’s monetary policy response.
The consensus among economists is for the annual inflation rate to hold steady at 2.7%. Consumer price stability is a significant implication of this projection for the future. In this sense, stability can be construed as a good thing and a hopeful sign for the economy. Most analysts think the CPI reading will come in at 2.7% or less. They view it as unlikely that the total will go above this number. This result would be a clear indication that inflationary pressures are not mounting. That’s high-fiving good news for consumers and businesses alike!
Even with the projected flat month-over-month figure, the CPI is still well above the Federal Reserve’s long-term inflation goal of 2 percent. This continuing discrepancy raises serious questions about the central bank’s approach to monetary policy. The Federal Reserve needs to be predicated on price stability. If inflation proves to be more stubbornly above target, that would likely raise talk of a rate increase in later meetings.
Beyond just the CPI data, other major economic indicators are showing that inflation is on the decline. Specifically, crude oil prices have experienced a consistent drop throughout the month of December. Lower oil prices typically lead to lower transportation and production costs. This, in turn, could lead to reduced costs of products and services. If this trend in crude oil prices holds, it will help pull down CPI and add to the conviction that inflation is on a moderate and stable path.
Market participants are already looking ahead to the CPI data release. They are keeping a close eye for any turns in economic signals that could suggest adjustments in inflation trends to come. Our next report in early January will shed more light on the consumer pricing trends. Perhaps more importantly, it will shape the discourse on monetary policy discussions among policymakers at the Federal Reserve.