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Press Release

Global factors may be weighing on US inflation, say Cleveland Fed researchers

Weakness in CPI inflation measures in August, combined with persistently low inflation rates through much of the last year and a half, suggests that inflation continues to be weighed down by a variety of forces, even as the recovery in the US economy progresses, say Federal Reserve Bank of Cleveland researchers William Bednar and Edward Knotek II. According to Bednar and Knotek, 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.

The researchers explain that a stronger US economy relative to other economies may result in a stronger dollar, which could make imports less expensive and put downward pressure on US inflation. While there is some evidence to support this pass-through channel, the researchers say it does not appear to be very strong.

But global inflation trends may still provide a useful signal for the US, say Bednar and Knotek. They note that since 1984, a global inflation trend measure has done a bit better at predicting one-year-ahead inflation than the long-run inflation forecast from the Survey of Professional Forecasters, a typical measure of trend inflation.

The researchers say this global inflation measure—mapped into US PCE inflation—has been running at only about a 1.5 percent level. To the extent that this global inflation trend continues to be a useful predictor of future domestic inflation, its ongoing low readings point to the potential for additional subdued US inflation ahead.

Read Global Factors and Domestic Inflation

GDP growth expected to pick up, says Cleveland Fed researcher

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, says Filippo Occhino, a senior research economist at the Federal Reserve Bank of Cleveland.

Occhino notes that in the five years following the end of the recession, real GDP grew at a steady, albeit modest, 2.2 percent average annual rate. And according to the latest CBO forecast, real GDP growth is expected to pick up in the next few years. In addition, the CBO projects that real output will grow faster than potential in the years 2015 through 2017, which will almost completely close the current wide 4 percent gap between actual and potential output.

Read Growth Expected to Pick Up

Federal Reserve Bank of Cleveland

The Federal Reserve Bank of Cleveland is one of 12 regional Reserve Banks that along with the Board of Governors in Washington DC comprise the Federal Reserve System. Part of the US central bank, the Cleveland Fed participates in the formulation of our nation’s monetary policy, supervises banking organizations, provides payment and other services to financial institutions and to the US Treasury, and performs many activities that support Federal Reserve operations System-wide. In addition, the Bank supports the well-being of communities across the Fourth Federal Reserve District through a wide array of research, outreach, and educational activities.

The Cleveland Fed, with branches in Cincinnati and Pittsburgh, serves an area that comprises Ohio, western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia.

Media contact

Doug Campbell,, 513.455.4479