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“Idiosyncratic and Transitory Factors” Holding Down Inflation: New Definition of Transitory

Courtesy of Mish.

The latest Personal Incomes and Outlays report showed that the Personal Consumption Expenditures (PCE) price index was only up 1.4% from the same quarter a year ago. Excluding food and energy, the PCE was up 1.5%.

Yesterday, I made this sure-fire prediction: “Consumers like falling prices but the Fed sure doesn’t. Expect to hear more ‘transitory‘ comments from Janet Yellen.” For details, please see Personal Income Flat in June, May Revised Lower: PCE Inflation Down Again.

Yellen did not chime in today, but Loretta Mester, president of the Cleveland Fed did.

Bloomberg reports Fed’s Mester Expects Inflation to Rebound From One-Time Factors

Federal Reserve Bank of Cleveland President Loretta Mester is keeping the faith that weak inflation will bounce back, even as she lowers her estimate for where unemployment begins to trigger higher prices.

“My suspicion is it’s the idiosyncratic factors, it’s transitory and that the factors pushing down inflation are going to dissipate over time,” Mester told reporters on Wednesday after delivering a speech to Ohio community bankers in Cincinnati. “I still have a forecast for a gradual increase in inflation back to 2 percent over time.”

The Fed’s preferred inflation measure was 1.5 percent in the 12 months through June, after stripping out food and energy components, still below its 2 percent target.

How Long Has This Been Goin On?

Inquiring minds may be wondering how long these transitory factors have been going on. I can help.

Here is a chart of the Fed’s preferred inflation index, PCE excluding food and energy, since 1992.

The Fed hit its inflation target precisely one time in the last 9 years.


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