U.S. Inflation Outlook 2014: Signs of Life
Nicholas J. Johnson, Mihir P. Worah
January 2014
" We expect headline CPI to rise to around 2.0% year-over-year in 2014, with our base case oil forecast in the $105â$110 per-barrel range and expectations for food prices to be stable.
" PCE, in our view, will likely remain below the Fedâs 2% target, around 1.5%.
" Individuals will get some relief at the supermarket, but they will feel a pinch from landlords, who will likely raise rents.
"Inflation has been mostly dormant in the U.S. despite the Federal Reserveâs accommodative monetary policy, but it is likely to show signs of life this year. While slowly rising prices may seem desirable, prices that rise too slowly or even fall could have deleterious effects on the economy by incentivizing individuals and corporations to delay consumption and investment, and by making loans more expensive to service. Therefore, the Fed has renewed its focus on raising the inflation rate toward its 2.0% target for the Personal Consumption Expenditures (PCE) price index, which differs somewhat in composition and scope from the more widely recognized Consumer Price Index (CPI).
"For 2014, we see CPI rising to 2.0% from 1.2% currently (and core CPI rising to over 2.0% from 1.7%; see Figure 1). We expect PCE, however, will remain below the Fedâs 2.0% target. Individuals will get some relief at the supermarket, but they will feel a pinch from landlords, who will likely raise rents.
<img src="http://media.pimco.com/PublishingImages/Viewpoint_Johnson_Worah_Jan2014_Fig1.PNG">
"What goes into our inflation forecast?"
http://www.pimco.com/EN/Insights/Pages/US-Inflation-Outlook-2014-Signs-of-Life.aspx