Further complicating the Federal Reserve’s efforts to raise interest rates was today’s consumer price index figures which missed expectations and show continued weakness despite average ordinary Americans feeling the impact of food and housing inflation still on the rise. One area of particular focus that many pundits have been keen to focus on is the surge in beef prices over the last two years with the American staple increasing by over 30% over that time period. To say there is not inflation in the economy is somewhat misleading, especially with energy and housing prices on the rise in confluence with the gains in food inflation. With the structural shift in the housing sector, rents continue to rise across the nation as housing supply becomes increasingly scarce and prices trend higher while incomes remain largely unchanged. Nevertheless, the numbers themselves indeed might prove the charts not to show the Federal Reserve might not be able to meet its own ambitious targets.
John Hilsenrath, the Federal Reserve mouthpiece from the Wall Street Journal recently had the audacity to ask consumers in an op-ed why consumers were not consuming. The blowback was substantial with most of America complaining that they had not benefited from the epic quantitative easing undertaken by the Federal Reserve to prop up the economy. The reality, as they insisted, was that the rising tide did not lift all boats. While it is true that on an aggregate basis wealth has continued to rise, recently hitting a new record for household wealth, it was not necessarily created for the vast majority of the population that is more sensitive to inflation in energy, food, and housing. Consumers are not consuming because disposable income is not what it used to be as wage earners see limited upside in income growth with expenses eating up a greater share of paychecks. The dollar so far continues to weaken since the announcement as markets lose confidence in the Fed’s ability to actually hike rates when taking into consideration the real macroeconomic environment.
Inflation Grows Less Than Forecast
Market Trends - 18/06/2015