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Prices Tame, Consumer Sentiment Stronger

Courtesy of commons.wikimedia.org (Credit: Revisorweb)

Look for the Federal Reserve to be even more patient with raising interest rates amid this morning’s data showing that consumer prices were still quite tame.

The Consumer Price Index fell 0.4 percent in December, which is the biggest one-month drop since December 2008. It fell 0.3 percent in November, but over the last year is up 0.8 percent. Helping pull the index lower was a 9.1 percent drop in energy goods.

Outside of energy, most consumer goods and services experienced very modest price increases, or in some cases price decreases.  The few exceptions were health care, particularly hospitals and pharmaceuticals, college tuition, housing, and restaurants.

Slow wage growth helped keep demand in check, while a strong dollar and ongoing gains in productivity are helping restrain cost pressures.

These recent trends will allow the Federal Open Market Committee to be very patient when it comes to raising interest rates, in terms of both the start date and the pace of increases.

We also heard this morning from the University of Michigan that consumer sentiment  rose to its highest level since January 2004.  The combination of continued jobs gains and falling gas prices are helping boost consumer sentiment.

Overall, the U.S. economy is in pretty good position as 2015 gets going. We continue to expect solid GDP growth and low inflation over the next few quarters.

One Comment Post a comment
  1. Katy Delay #

    Solid growth and low inflation? Or deflation? Isn’t it interesting, all the cacophony we are now subject to. Which voices should we heed? Example on the deflation side:

    http://www.businessinsider.com/deflation-risk-in-the-us-is-escalating-2015-1

    Like

    January 16, 2015

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