by Calculated Risk on 12/27/2019 11:54:00 AM
Friday, December 27, 2019
Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
Earlier I posted some questions for next year: Ten Economic Questions for 2020. I'm adding some thoughts, and maybe some predictions for each question.
6) Inflation: By some measures, inflation rate has increased and is now slightly above the Fed's 2% target. However core PCE was only up 1.6% YoY through November. Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
Although there are different measure for inflation (including some private measures) they mostly show inflation slightly above the Fed's 2% inflation target. Core PCE was below the target at 1.6% YoY in November.
Note: 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.
This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.9%, the trimmed-mean CPI rose 2.4%, and the CPI less food and energy rose 2.3%. Core PCE is for October and increased 1.6% year-over-year.
On a monthly basis, median CPI was at 2.9% annualized and trimmed-mean CPI was at 3.1% annualized.
The Fed is projecting core PCE inflation will increase to 1.9% to 2.0% by Q4 2020. There are risks for higher inflation with the labor market near full employment, however I do think there are structural reasons for low inflation (demographics, few employment agreements that lead to wage-price-spiral, etc).
So, although I think core PCE inflation (year-over-year) will increase a little in 2020 (from the current 1.6%), I think too much inflation will still not be a serious concern in 2020.
Here are the Ten Economic Questions for 2020 and a few predictions:
• Question #1 for 2020: How much will the economy grow in 2020?
• Question #2 for 2020: Will job creation in 2020 be as strong as in 2019?
• Question #3 for 2020: What will the unemployment rate be in December 2020?
• Question #4 for 2020: Will the overall participation rate start declining in 2020, or will it move more sideways (or slightly up) in 2020?
• Question #5 for 2020: How much will wages increase in 2020?
• Question #6 for 2020: Will the core inflation rate rise in 2020? Will too much inflation be a concern in 2020?
• Question #7 for 2020: Will the Fed cut or raise rates in 2020, and if so, by how much?
• Question #8 for 2020: How much will RI increase in 2020? How about housing starts and new home sales in 2020?
• Question #9 for 2020: What will happen with house prices in 2020?
• Question #10 for 2020: Will housing inventory increase or decrease in 2020?