Time To Start Worrying About Inflation?

By John S. McClenahen Inflation in the U.S. economy, as measured by the Consumer Price Index (CPI), seems tame enough. According to seasonally adjusted data released by the U.S. Labor Department on Nov. 18, the overall CPI was unchanged from September to October. However, the so-called core-CPI, which excludes the often volatile changes in prices for food and fuel, rose 0.2% in October, twice the amount that economists generally expected. "The data suggest to us that the [year-to-year] trend in core-CPI has bottomed out," says Maury Harris, chief U.S. economist at UBS Investment Research, New York. "The level of inflation remains too low to trouble monetary authorities, but the bottoming is a reminder that the Fed cannot stay on hold forever." In its latest economic forecast, UBS foresees the U.S. Federal Reserve holding its federal funds target rate at 1% through mid-2004 and then allowing it to rise to an average of 1.3% in the third quarter and 1.8% in the fourth quarter.

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