inflationThe U.S. Federal Reserve has been raising interest rates in anticipation of higher inflation.

In its 2018 forecast, Goldman Sachs indicated it expected to see “a gradual increase in global core inflation, albeit to levels that are still below central bank targets in most places.”

At year-end 2017, Barron’s wrote:

“Economists have raised the specter of inflation for several years, only to be disproved time and again. There’s reason to believe, however, that 2018 will be different – that prices will finally rise in a more sustained pattern, forcing stock- and bond-market investors to react to a new trend. ‘An unanticipated acceleration in inflation is probably the biggest risk for markets in 2018,’ says Larry Hatheway, chief economist at GAM Investments…Economists like Hatheway aren’t expecting runaway inflation, as in the days of disco and leisure suits, when prices rose by double digits. They’re girding for an annual increase of 2 percent to 2.5 percent at the most.”

Last week, data released by the Department of Labor showed U.S. inflation, as measured by the Consumer Price Index, ticked higher (0.1 percent) during December. With food and energy excluded, the index was up 0.3 percent. Shelter, which reflects the cost of rent, rose the most (0.4 percent). The indices for medical care, new vehicles, used vehicles, and vehicle insurance all increased during December.

Some publications are predicting December’s uptick in inflation will lead to a March rate hike by the Federal Reserve. It’s difficult to say with certainty, however, until January’s inflation report is released on February 14.

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* These are the general views of Jonathan DeYoe and they should not be construed as investment advice for any individual.

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* “Inflation, inflation, where’s the inflation?”

Sources:

https://www.federalreserve.gov/monetarypolicy/files/monetary20171213a1.pdf
http://www.goldmansachs.com/our-thinking/pages/macroeconomic-insights-folder/2018-global-economic-outlook-as-good-as-it-gets/report.pdf (Page 1)
https://www.barrons.com/articles/what-inflation-could-mean-for-the-market-1514604543 (or go to https://s3-us-west-2.amazonaws.com/peakcontent/+Peak+Commentary/01-16-18_Barrons-What_Inflation_Could_Mean_for_the_Market-Footnote_3.pdf)
https://www.bls.gov/news.release/cpi.nr0.htm
https://www.reuters.com/article/us-usa-economy/rising-rents-healthcare-costs-boost-underlying-u-s-inflation-idUSKBN1F11QD
https://www.ft.com/content/7ba28a3a-f7a5-11e7-88f7-5465a6ce1a00 (See Headline)