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The Fed Has Been Trying To Get The Inflation Rate Up To 2%. Do We Now Need To Worry About High Inflation?

ArmchairPolitician.USInflation, February 19, 2018, by Brad Peery

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Since the Trump Presidency started in January, 2017, the Fed has been concerned about the inflation rate being below their targeted 2% rate. The economy has been strong, reaching a 2.5% growth rate in 2017. And, Trump is projecting that the economy, because of the tax cuts, deregulation, and job creation, will average 3.0% over the next ten years. Higher inflation seems to be in prospect.

The consumer price index (CPI) rose a seasonally adjusted 0.5% in January, 2018. For the 12 months through January, the CPI grew at a 2.1% pace. A jump in gasoline prices contributed to the increase. When stripped of food and energy costs, the core CPI was up only 1.82%. The overall inflation environment does seem to be firming early in 2018 as U.S. unemployment is reaching record low levels of 4.1% and worldwide economic growth is pushing commodity prices higher.

Another fundamental inflation index, the producer price index (PPI), measures the inflation rate of goods sold to consumers, businesses and other entities such as governments. The core PPI rose 0.4% in January, 2018, and was up by 2.5% for the last 12 months ending in January. The PPI itself was up by 2.7% for the 12-month period. Energy prices contributed to the PPI increase.

ArmchairPolitician.US Opinion
We expect the U.S. economy to grow by over 3% in a 2018, driven by corporate and personal tax reductions, and deregulation. We expect worker wage increases to be strong in 2018, driven by unemployment rates that could go below 4.0%. Commodity prices should continue to increase, driven by worldwide economic growth. Growth in the U.S. should be over 3% of GDP. All of those factors lead us to expect that the PPI for core prices should go over 3% in 2018, and the core CPI should reach at least a 2.5% rate for the year.

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