US disinflation and unemployment

Sam Ferraro

The data flow from the United States was surprisingly upbeat. The second estimate for real GDP showed a 3.7% (annualised) lift in the June quarter, up from the advance estimate of 2.3% and well above the March quarter outcome of 0.6%. This lifted average annual growth in nominal GDP to 4% in 2014/15. But nominal GDP growth has stalled for the past five years at 3-4%pa... The US Federal Reserve’s unwillingness to combat disinflationary forces has contributed to the growth stall. The core personal & consumption expenditure (PCE) price index (which excludes food & energy items) is only 1.3% higher than its level a year ago. No doubt, the Fed remains puzzled that the disinflation of the past four years has emerged at a time when the unemployment rate has declined by more than 300 basis points (see chart). So much for a ‘tighter’ labour market contributing to higher inflation. (VIEW LINK)

Sam Ferraro
Sam Ferraro
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