A fear of runaway price rises rather than current economic data is driving the Federal Reserve’s commitment to raise rates in the United States, according to one economist.
U.S. core inflation crept 0.2 percent higher in April, according to fresh data Thursday, falling short of the expected 0.3 percent gain. Fuel and rental prices were the main drivers of price growth but were largely offset by flat prices in health care.
Ian Shepherdson, the chief economist at Pantheon Macro, said to “Squawk Box Europe” Friday that any inflationary impetus that would justify higher interest rates isn’t really there.
“The wage numbers for the last couple of years have been kind of flat at about 2.5 percent and that’s not really scaring anybody, so that raises the question why on earth is the Fed raising rates?,” Shepherdson asked.
“It is because of fear of what might be in the pipeline,” he added.
The last time the unemployment rate in the States reached its current level, inflation ran as high as 6 percent and Shepherdson said the Fed wants to prevent history repeating itself.
In the summer of 2017, core inflation stood at around 1.7 percent and has now hit 2.1 percent year-on-year. Shepherdson said any previous worries about falling prices should now be cast aside.
“I do think that there is no inflation is yesterday’s story, and this idea of global deflation, that story is ancient, ancient news,” he added.
In the U.S., prices at the gas pump have been moving up sharply, topping $3 a gallon in many western states.
Asked if economists were wrong to focus on core inflation, which strips out fuel, Shepherdson said while Fed members are concerned gas price spikes might stoke wage inflation, there was no evidence it had happened yet.
Link to the source of information: www.cnbc.com
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