We stand at a critical juncture, Strauss-Kahn says. The sustainability of this recovery will depend on the decisions taken by policymakers in the months to come.
I see fewer problems with monetary policy...Especially in many advanced economies, monetary policy can afford to stay accommodative for some time, given little sign of inflation on the horizon.
How are we doing in the US? The following chart provides a very long-term historical perspective on inflation, as measured by the Consumer Price Index for Urban Consumers (CPI-U).
The annualized inflation rate computed from this number is -0.18%, which marks the eighth consecutive month of deflation. However, the rate of deflation has steadily eased over the past four months from -2.10% in July, -1.48% in August, -1.29% in September, to the current -0.18%.
Now we should start to see an increase in the inflation statistic, if nothing else because we are starting to measure off of low points from a year ago. In addition, as consumers start to create some demand, following a resumption in the velocity of money circulating throughout the US, we should experience some inflationary tendencies.
The bond markets are still confirming that inflation expectations are relatively low. The 30-year AAA corporate bond yields are but one of many bond market measures that track like this graph.
The yields on 10-year Treasury Inflation Protected Securities (TIPS) provide another glimpse into investor's views about inflation. The bond market doesn't seem to be too concerned at the moment, either. The spreads between TIPS and the 10-year Treasury yields is back to "normal," as viewed over this past decade--with a spread of about 1.75%.
Finally, here is the Personal Consumption Index graphed over time--both with (black) and without (gold) the food & energy component. Note that food & energy prices are quite volatile, so often inflation measures are viewed without them in order to gain a better perspective on the underlying pattern.
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