Although the federal budget deficit has reached a record high and the Fed has provided unprecedented levels of liquidity, inflation is dead.
Consumer prices in the United States did not change in October, at the lowest level in five months, indicating that the summer price surge has begun to weaken with the spread of coronavirus cases.
It was flat last month and increased by 0.2% in September. The Labor Department reported on Thursday that the core inflation rate (excluding fluctuating food and energy costs) remained unchanged in October, again indicating that the inflation rate performed well.
The extremely low inflation rate poses a challenge to the supporters of mainstream monetary theory, which predicts that an increase in the money supply will push up prices. This shows that the Fed can maintain its interest rate target within the current range of zero to one-quarter without triggering inflation.
Perhaps more controversially, the lack of any inflationary pressure suggests that the federal government can even provide more fiscal expansion than it can provide to avoid economic collapse due to the pandemic. Taxes can be cut further, thereby increasing the deficit and leaving more money for the private sector.
Unfortunately, Joe Biden has promised that if he becomes president, he will raise taxes, and House Democrats are unlikely to agree to further tax cuts during Trump̵
Therefore, fiscal expansion seems unlikely. This means that inflation is likely to continue or not die. Deflation will create a huge problem for the Fed’s credibility, because the central bank stated that its current goal is to make the inflation rate exceed its 2% target.
Side note: All China and metal tariffs still exist. The mainstream media and mainstream economists insist that this will increase consumer prices. Those price increases never happened. Even now, the global supply chain has been in chaos due to the interference of the pandemic, consumer prices have not risen, and tariff costs have not been transferred to American households.
In the past 12 months, headline inflation has risen by 1.2%, while core inflation has risen by 1.6%. Both figures are far below the Fed’s annual price target of 2%.
Economists believe that the October Consumer Price Index shows that inflation is well under control, which will allow the central bank to keep interest rates low for a long period of time.
After the economy opened up, consumer prices accelerated. However, the trend has weakened, and overall price pressure remains under control. “High Frequency Economics US chief economist Rubeela Farooqi said.
Kathy Bosjancic, U.S. chief financial economist at the Oxford Economics Institute, said, “Good inflation data supports our call that the Federal Reserve will maintain the current ultra-low interest rates by mid-2024.
At the meeting last week, the Fed maintained the key policy rate at a historical low of zero to 0.25%, and reiterated its new policy guidance to keep interest rates low to allow inflation to rise above 2% for a period of time. Reduce the unemployment rate.
The CPI report shows that the price of used cars, which has been soaring, dropped slightly in October. After rising by 6.7% in September, it fell by 0.1%, the largest monthly increase in 51 years.
Even with a decline in October, used car prices are still 11.5% higher than a year ago. The price of new cars rose by 0.4% in October, which is 1.5% higher than the same period last year.
Energy prices rose slightly by 0.1% in October, and gasoline prices fell by 0.5%. This makes the price of the pump 18% lower than a year ago.
Food costs rose slightly by 0.2% in October, 3.9% higher than the same period last year. The price of dairy products and related products fell by 0.9% in October, the biggest drop since January 2015. Prices in four of the six major grocery store groups rose in October, with meat, poultry, fish and eggs all rising.
The Associated Press contributed to this report.