Where is inflation headed?

Date posted: November 29, 2013

Inflation has been way down on the list of economic issues in recent years. In 2009, we actually had deflation –┬ámeaning average prices dropped. But some worried that higher inflation is just a matter of time, especially with all the money and credit the Federal Reserve has produced. N.C. State University economist Mike Walden discusses the inflation forecast.

“This is obviously a question economists get asked a lot. And what we do is we look at financial markets. You can actually look at financial markets — in particular, financial investments — that implicitly include an inflation component. And depending on how far out you’re looking at the rates’ return on those investments, you can therefore get a forecast of inflation.

“Well recently, the Federal Reserve Bank of Cleveland used this tool and some other indicators to generate inflation forecasts, and the result is actually good news for people who want mild inflation to continue. In fact, the Federal Reserve Bank of Cleveland predicts that the average annual rate of inflation for each year over the next decade will only be 1.7 percent — about where what has been for the last couple of years.

“They cite two major reasons for this low inflation rate: One, globalization, meanubg that we have more producers producing more goods and services around the world, keeping the supply high and a slack labor market.”

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