Federal Open Market Committee (FOMC) in its latest meeting on March 20, forecasted that PCE inflation rate in the United States will average at 1.8 percent in 2019 then increase to 2.0 percent in 2020 and stabilize at around 2 percent over 2021. FOMC - monetary policymaking body of the U.S. Federal Reserve System seeking to foster price stability - publishes inflation projections from its all twelve members four times a year in connection with their meetings in March, June, September, and December. The next projection will be made on the next two-days meeting on June 18-19.
PCE inflation refers to the percent change in the personal consumption expenditures price index. PCE inflation is used by the Federal Reserve as a primary measure of inflation to set inflation goal. Other agencies, including International Monetary Fund (IMF), United Nations Department of Economic and Social Affairs (UNDESA), Organisation for Economic Co-operation and Development (OECD), European Commission and the U.S. Department of Agriculture (USDA) give inflation forecasts in terms of Consumer Price Index (CPI). Due to the differences in their baskets of goods, the two inflation measures are not identical: since 1970, CPI inflation was on average 0.5 percentage points higher than PCE inflation.
According to different agencies, US CPI inflation will be within the range from 2 to 2.4 percent in 2019 and average at around 2.5 percent in 2020. European Commission, IMF and United Nations, OECD and USDA estimate that CPI inflation will decrease in 2019. Over the longer term up to 2022, CPI inflation in the US is expected to be 2.2 percent.
Inflation rate depends on the balance between aggregate supply and demand within the economy. Labor market conditions and inflation expectations are the major supply forces: decrease of unemployment rate means the supply of workforce falls (as the unemployed are those who are seeking for a job) which, in turn, increases the wages and the inflation.
According to the U.S. Department of Labor (DOL), as of the week starting April 1, US jobless claims fell to 196 thousand after a spike in January continuing a general downward trend which suggests the inflation will continue to rise. Inflation expectations also increased in March, especially expected inflation for three-years ahead which rose to 2.86% as per the New York Fed’s Survey of Consumer Expectations.
US GDP, representing the country's aggregate demand, decreased up to 2.4 percent in the fourth quarter of 2018 according to the U.S. Bureau of Economic Analysis (BEA) which means inflation is going to decrease.
Current US CPI inflation released monthly by the U.S. Bureau of Labor Statistics (BLS) fell to 1.52 percent in February averaging 1.54 percent since the start of the year. US PCE inflation releases by BEA also started to fall in August 2018 after a slight rise in June.
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