Economists have struggled to understand the phenomenon, but they believe inflation is being controlled by a cocktail of aging demographics, changes in consumer expectations and limited pricing power in a globalized world where consumers can search online to compare prices.
Market-based inflation expectation measures are hovering around 2%, and consumer inflation prospects have fallen slightly in the past decade, although an indicator has risen in a recent reading. If buyers do not expect higher prices, companies may find themselves unable to increase them, so that whatever people anticipate can lead to reality.
It is also difficult to see where a large and sustained price hike would come from, analysts say.
Airfares, clothing prices and hotel prices suffered a blow in 2020 during the height of the pandemic, and are likely to increase dramatically as the economy reopens and consumers with money in their pockets take vacations and renovate their wardrobes, said Alan Detmeister, a former Fed inflation expert who now works at UBS.
Still, the price of products that have skyrocketed as workers have moved to home offices – from the category that includes laptops to the one that tracks cars – may fall, weighing on overall earnings. The categories that are very important for the general index, such as rent and health insurance, are moderate and have a slow evolution.
In any case, a temporary price recovery is not the same as an inflationary process in which price gains continue month after month.
Even if prices jump temporarily, the Fed has promised to be patient in the way it thinks about inflation. In previous years – including under Yellen’s supervision – he raised interest rates before price gains actually increased to prevent possible overheating. The new central bank structure, adopted last year, asks policymakers to aim for a period of inflation above 2% to reach their target on average over time.
In addition to stabilizing prices, Congress also mandates the Fed to try to get the most jobs. Charles Evans, president of the Federal Reserve Bank of Chicago, said earlier this month that $ 1.9 trillion in government spending would have the potential to help the Fed reach its inflation and labor market targets more quickly.
“I have a hard time seeing the size of this leading to overheating,” he said.