Monday, February 20, 2012

Inflation has momentum



Any way you look at it inflation is on the rise. The momentum is actually quite strong given the output gap that we are facing. Food and energy costs have clearly risen but core rates are also high. It is likely that these rates will reach the early 90's levels, but current inflation does not suggest that we have a deflation problem. Given the inflation target of 2% we are actually close to the Fed's optimal level. Still the momentum is a concern.

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