Low Inflation: A Sign of Fading Consumer Demand?
Are the recent low inflation readings a signal of weakening consumer demand or a transitory development? The answer is key for thinking about which way the economy and interest rates are headed. In this third blog examining recent inflation developments, I take a look at discretionary categories of consumer spending and pricing and find that there is indeed a correlation between weakness in consumption and inflation. Softer consumer spending comes despite a falling unemployment rate, rising stock markets and elevated levels of consumer confidence. Getting inflation to the Fed’s 2 percent target may require patience on the part of the Fed, but also greater exuberance on the part of the US consumer.