More economists are predicting that rising energy and food prices may finally prompt inflation to rise this summer.
Food and energy prices are not included in the core inflation rate the Federal Reserve uses to set interest rates because those prices are perceived as too volatile.
Fed officials say food and energy costs are "transitory" and won't impact other prices. The core inflation rate, composed of more stable products and services, remains low. The Fed, predicting that inflation will stay below its 2 percent target for the next few years, asserts that inflation is not a threat.
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However, some economists beg to differ, according to
CNBC. Rising food and energy costs will soon flow through the economy and boost core inflation, they say. That could force the Fed to raise rates earlier than it wishes, which could pose a real risk to the economy.
"For headline inflation, pipeline food prices have been soaring, and while there has already been significant pass-through to the consumer level in recent months, there is likely more to come," Morgan Stanley economist Ted Wieseman writes in a note to clients, CNBC reports.
After a small amount of deflation, core inflation, he adds, seems to be on the upturn due to the improving global economy. Escalating rents are putting price pressures on domestic core services. That pressure will probably continue as stringent mortgage lending standards increase demand for rents in already tight rental markets, Wieseman notes.
Prices for a range of goods and services are rising, writes Gluskin Sheff Chief Economist David Rosenberg in a note to clients, pointing to airline tickets, movie tickets and other recreational services.
"Repair service fees are on the rise. Shelter costs in general are on the rise. Tuition costs are on the rise. Medical service prices are on the rise."
The current obsession among policymakers about deflation is "the greatest hoax," Rosenberg says.
Lawrence Yun, chief economist for the National Association of Realtors, sees rising housing costs boosting the core inflation rate.
The core inflation rate increased at a 2.5 percent annualized rate in March. "If the core rate rises at such a pace on a sustained basis or moves even higher, the Federal Reserve will have no choice but to raise interest rates sooner than its public guidance to date," Yun writes in a column for
RISMedia's Power Broker Report.
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