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Wages, Prices to Rise in 2018?

February 19, 2018

Could we see inflation in 2018?

 

The most common measure of inflation is the U.S. Bureau of Labor Statistics’ consumer price index (CPI).

 

Another common metric is the U.S. Bureau of Economic Analysis’ personal consumption expenditures index (CPE). The organization also compares the CPI and CPE indices for an overall view.

 

Both statistics measure the price change in goods and services commonly purchased by households.

 

The core CPI has been trending lower since the early 1990’s when it was at 5.4 percent. Recent data has CPI at 2.1 percent. And while it’s trending downward over time, CPI has risen at an average rate of 1.76 percent since 2009.

 

There has been significant pressure on prices since the Great Recession. Plus, global uncertainty has meant less spending during large periods of time.

 

All of which leads to inflation.

 

Piling on has been the aggressive shift to online shopping, which brought on more price scrutiny than ever before. That changing of the tide has limited conventional retailers’ opportunities to raise prices.

 

And when you factor in depressed energy prices, it made it cheaper for firms to produce and ship goods.

 

Will these pressures wane in 2018 and produce inflation?

 

Well the stronger economy over the last three quarters likely means a better 2018. But that could precede inflation because of higher wages.

 

It really comes down to economic growth. If we keep growing at 3 percent or more – and I think we will – there’s a good chance the CPI will rise.

 

The Fed could be an inflation catalyst too if it goes through with its three or four planned rate hikes in 2018.

 

There are many factors to consider, and a lot of them point to higher prices along with higher growth in the near-term.

 

And inflation may follow.

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