US inflation moved up this spring after subdued readings in late 2013 and at the start of 2014. Measured on a year-over-year basis, inflation was stable near 1.6 percent from April through July according to the price index for personal consumption expenditures (PCE). As is normally the case, inflation measured by the consumer price index (CPI) was somewhat higher, averaging 2 percent during that time, though it too was relatively stable. However, the August CPI report broke this stable trend. One potential factor that could be weighing on US inflation—and which might serve as a headwind to future increases in inflation—is recent international developments, such as the unsteady recovery and low inflation outlook in the euro zone.
Growth Expected to Pick Up
Prolonged economic weakness following the Great Recession and slow growth in potential output has led to a debate on the risk of stagnation— a prolonged period characterized by low interest rates, low inflation rates, slow potential growth, and a level of output below potential. Current economic conditions, however, suggest that the economy continues to recover. In the five years following the end of the recession, real GDP grew at a steady, albeit modest, average annual rate. And according to the latest CBO forecast, real GDP growth is expected to pick up in the next few years.
Reassessing the Beveridge Curve “Shift” Four Years Later
Early on in the current recovery, economists and policymakers were worried about a potential shift in the Beveridge curve—an empirical relationship between job openings and unemployment that is viewed as a measure of the efficiency with which the labor market is matching unemployed workers to the available openings. Exactly four years ago, we touched upon this issue here, and argued that it was too early to call what had happened a shift. Well, four years later, we have 16 more quarterly data points to inform us.