However, this could not be concluded by listening to the President Donald Trump or even some of the fighters against inflation from the federal reserves, the Associated Press (AP) agency writes.
At the end of the last month, Trump stated the United Nations General Assembly that “prices of basic foods fell, the interest rates on mortgage loans fell, and inflation is defeated.”
And in a high-level speech in August, before the Federal Reserve reduced its key interest rate, President Jerome Powell said “inflation, although it was still reduced significantly in relation to post-competitive peaks.”
– The risks of inflation growth were reduced – Powell claimed.
However, neglecting or reducing the importance of inflation, while it is still above the target level of federal reserves of 2 percent, it is a great risk and for the White House and for Federal Reserves. The Trump Administration could be found on the wrong side of a great problem – because the surveys show that many Americans remain high prices as a serious burden for its finances, the AP.
Federal reserves could take even greater risk: they reduced the key interest rate assuming that the customs that introduces Trump administration will cause only temporary increase in inflation. If this assumption is shown inaccurate – if inflation additionally increases or remains elevated longer than expected – the credibility of federal reserves in the fight against inflation could be seriously disturbed.
This credibility plays a key role in the ability of federal reserves to maintain price stability. If citizens are convinced that the central bank has inflation control, it will not respond in a way that would further deteriorate the situation – such as seeking significantly higher salaries due to price growth – which can run the so-called Inflation spiral. The companies are then often further raising the prices to compensate for higher labor costs.
However, the Senior Associate of the Peterson Institute for the International Economy, Karen Dynan, would, given that the memories of the pandemic period are still fresh, and customs are raising the price of importing trust that inflation will remain under control.
– If this is shown correct, looking back, the reduction in the interest rates that spent Fed expect a few more such – will be considered a mistake – Dynan emphasized.
So far, customs officers who introduces Trump Administration did not cause inflation growth to the extent that many economists expected it in the beginning of the year. Inflation is still significantly below the peak of 9.1 percent, which was recorded three years ago. However, consumer prices increased by 2.9 percent in August compared to the same month last year, which is more compared to 2.6 percent from the previous year, and above the goal of federal reserves of 2 percent.
The government should publish an inflation report for September Wednesday, but delay is expected due to the closure of government services.
Customs increased the prices of many imported products, including furniture, household appliances and toys. Overall, the prices of permanent industrial products increased by almost 2 percent in August compared to the previous year. It is a modest growth, but comes after almost three decades during which the prices of these products were mostly in the fall, the AP.
(Vijesti.ba / Fena)
