by Bill McBride on 12/30/2014 04:09:00 PM
Tuesday, December 30, 2014
Earlier I posted some questions for next year: Ten Economic Questions for 2015. I'll try to add some thoughts, and maybe some predictions for each question.
Here is a review of the Ten Economic Questions for 2014.
4) Inflation: The inflation rate is still running well below the Fed's 2% target. Will the core inflation rate rise in 2015? Will too much inflation be a concern in 2015?
Every year some analysts (and clueless politicians) forecast runaway inflation. And every year they have been wrong. Someday inflation will be a concern - but not yet!
Although there are different measure for inflation (including some private measures) they all show that inflation is at or below the Fed's 2% inflation target. I follow several measures of inflation, median CPI and trimmed-mean CPI from the Cleveland Fed. Core PCE prices (monthly from the BEA) and core CPI (from the BLS).
Click on graph for larger image.
On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 1.8%, and the CPI less food and energy rose 1.7%. Core PCE is for October and increased 1.6% year-over-year
On a monthly basis, median CPI was at 1.8% annualized, trimmed-mean CPI was at 1.0% annualized, and core CPI increased 0.9% annualized.
Due to the slack in the labor market (elevated unemployment rate, part time workers for economic reasons), and even with some real wage growth in 2015, I expect these measures of inflation will stay mostly at or below the Fed's target in 2015. If the unemployment rate continues to decline - and wage growth picks up - maybe inflation will be an issue in 2016.
So currently I think core inflation (year-over-year) will increase in 2015, but too much inflation will not be a serious concern this year.
Here are the ten questions for 2015 and a few predictions:
• Question #2 for 2015: How many payroll jobs will be added in 2015?
• Question #3 for 2015: What will the unemployment rate be in December 2015?
• Question #4 for 2015: Will too much inflation be a concern in 2015?
• Question #5 for 2015: Will the Fed raise rates in 2015? If so, when?
• Question #6 for 2015: Will real wages increase in 2015?
• Question #7 for 2015: What about oil prices in 2015?
• Question #8 for 2015: How much will Residential Investment increase?
• Question #9 for 2015: What will happen with house prices in 2015?
• Question #10 for 2015: How much will housing inventory increase in 2015?