Forget Inflation – Deflation Could Rear Its Ugly Head Soon

By FOX News
Posted on 07/09/21 | News Source: FOX News

Record price gains across large swaths of the economy have left many investors bracing for a period of sustained inflation, causing them to overlook the growing threat of deflation, according to some economists.

Deflation, in which prices retreat, is viewed as a negative sign for the U.S. economy.

While Federal Reserve Chairman Jerome Powell has insisted that the recent surge in inflation is “transitory,” pointing to the more than 50% decline in the cost of lumber as evidence that prices will cool as supply chain issues caused by COVID-19 are resolved, he has not yet hinted that deflation could be emerging.

The Fed in August tweaked its policy, saying it would allow inflation to run “moderately” above 2% “for some time” in order to help the central bank meet its goal of full employment.

Last month, core personal consumption expenditures rose 3.4% annually, which was above the central bank’s 2% target and the most since April 1992. Prices were up 0.5% from the prior month.

The annual data has a “base effects” skew due to the price decline that occurred at the onset of the COVID-19 pandemic.