INFLATION RETURNS 091917
By Isaac Cohen*
Three hurricanes can help you make up your mind. As a consequence of the devastation inflicted to the Gulf of Mexico region in the United States, inflation immediately picked up and this time was not due to factors which could be dismissed as transitory noise. Last week, the Labor Department revealed an August increase of 0.4 percent in consumer prices, since July. Among the main contributing factors was the sharp increase in gasoline prices due to hurricane Harvey’s shut down of oil refining capacity in Texas and Louisiana, equivalent to one fifth of national refineries and petrochemical plants. The US Gulf Coast processes around half of US oil consumption, therefore crude oil prices approached $50 per barrel and the national average price of regular gasoline went over $2.70 per gallon.
But the impact of the hurricanes was not the only factor, because without food and fuel prices still increased 0.2 percent in August, above the central bank’s annual target of 2 percent, while unemployment remained low, at 4.4 percent also in August. The question is if the central bank authorities will conclude inflation has returned and that it is time for another interest rate increase and to start reducing the Federal Reserve’s $4.5 trillion balance sheet.
Answers to these questions may be available in Washington DC, on Wednesday, September 20, at the conclusion of the Federal Reserve Open Market Committee meeting, during the press conference offered by the Chair Janet Yellen.