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11 Mar 2014
Flash: US inflation... lower for longer? - BAML
FXStreet (Barcelona) - Michael S. Hanson, US Economist at Bank of America Merrill Lynch, assesses US consumer prices would remain low for a long time.
Key Quotes
"One of our main out-of-consensus calls for the US economy is that inflation will remain low throughout 2014. We have previously highlighted a number of global disinflationary factors, including excess capacity, soft commodity prices, and a strong US dollar. We have also noted that many "special factor" stories fail upon closer inspection, and that relative price changes do not constitute inflation."
"Moreover, we see a still-elevated slack in the labor market, particularly after accounting for workers who are underemployed (such as those part-time for economic reasons) or outside the labor force (discouraged and marginally attached workers). However, that slack has clearly narrowed over the past few years of recovery. Despite its otherwise lackluster nature, last week's employment report revealed a 0.4% increase in average hourly earnings for February - returning the annual growth rate of wages to the 2.2% seen late last year (Chart of the Day)."
"Additionally, the most recent Beige Book highlighted "upward wage pressures" in certain industries. We examine several measures of aggregate wage growth over time and peer within some industry-level data, and find some tentative signs of a gradual increase in wages as the economy continues to heal."
"But, at this point in time, these do not appear poised to push inflation up significantly over the next year or so, in our view. The evidence presented here does not suggest the Fed is "falling behind the curve" with regard to wage growth - at least, not yet."
Key Quotes
"One of our main out-of-consensus calls for the US economy is that inflation will remain low throughout 2014. We have previously highlighted a number of global disinflationary factors, including excess capacity, soft commodity prices, and a strong US dollar. We have also noted that many "special factor" stories fail upon closer inspection, and that relative price changes do not constitute inflation."
"Moreover, we see a still-elevated slack in the labor market, particularly after accounting for workers who are underemployed (such as those part-time for economic reasons) or outside the labor force (discouraged and marginally attached workers). However, that slack has clearly narrowed over the past few years of recovery. Despite its otherwise lackluster nature, last week's employment report revealed a 0.4% increase in average hourly earnings for February - returning the annual growth rate of wages to the 2.2% seen late last year (Chart of the Day)."
"Additionally, the most recent Beige Book highlighted "upward wage pressures" in certain industries. We examine several measures of aggregate wage growth over time and peer within some industry-level data, and find some tentative signs of a gradual increase in wages as the economy continues to heal."
"But, at this point in time, these do not appear poised to push inflation up significantly over the next year or so, in our view. The evidence presented here does not suggest the Fed is "falling behind the curve" with regard to wage growth - at least, not yet."