Sure, many U.S. inflation indicators have been moving higher in recent months. But that’s because most of them are really a look into the rearview mirror, argue economists at JP Morgan. In a note entitled “The rise in U.S. inflation is yesterday’s headache,” they say the same pattern was observed in early 2008, just before a deepening financial crisis dragged prices lower across the world economy:
At first glance the rise in inflation looks anomalous against the backdrop of persistently disappointing U.S. and global growth and hints at an intractable stagflation problem. But it is very likely that the rise in both inflation and core inflation will prove temporary and soon recede. In this regard,the inflation performance in early 2008 provides a useful model. Then, as now, inflation rose while the economy was weakening. And then, as now, the rise in inflation mainly reflected the upward pressure on goods prices from much higher commodity prices and a weakening dollar.
That means the Fed, which has just announced a fresh effort to push down long-term borrowing costs, may have room to ease monetary policy further if it feels the need.