Recent Weakness in Inflation – Is It Short Lived?
An Uptick In Inflation
A strong labor market and stable/rising commodity prices are the primary drivers behind rising inflation trends going forward.
We view the recent weakness in inflation as transitory. As the U.S. continues to move closer to full employment, competition for skilled and available labor should push wages higher. As wages begin to rise, we expect to see an increase in the prices of goods and services because of rising employer costs and increasing consumer demand. For now, lower levels of inflation help to support the current economic expansion.
The U.S. Continues to Move Closer to Full Employment1
As Wages Rise, We Expect an Increase in Goods’ & Services’ Price1
When inflation trends upwards, investors may want to consider strategies that provide exposure to commodities, if suitable.
1. Sources: Thomson Reuters Datastream, New York Life Investments, 6/30/17. In this context, full employment means that unemployment is at a level consistent with stable inflation. The ‘natural’ rate of unemployment shown is estimated by the Congressional Budget Office (CBO). The Federal Reserve’s own estimate was revised from 5.35% to 5.0%-5.2% in March 2016, a level also consistent with a recent Wall Street Journal survey of economists.1. Sources: Thomson Reuters Datastream, New York Life Investments, 6/30/17. In this context, full employment means that unemployment is at a level consistent with stable inflation. The ‘natural’ rate of unemployment shown is estimated by the Congressional Budget Office (CBO). The Federal Reserve’s own estimate was revised from 5.35% to 5.0%-5.2% in March 2016, a level also consistent with a recent Wall Street Journal survey of economists.
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