Last Data on American Inflation Do Not Impress

Question of achievement of 2% inflation level, which constantly exists in Fed’s rhetoric, could become a big problem, and its solvation would be prolonged on uncertain term.

Index of consumer prices CPI fell by 0.1% against July’s index on last Wednesday. In comparison with the same period in 2014, index has risen only by 0.2%. Petrol price became the factor that has caused weakening of index, but it’s not the only one reason. Another inflation index – base index, calculation of which does not include cost of energy and food products - has risen in previous month only by 0.1% against July and by 1.8% against August 2014.

Making of Fed’s decisions is based generally on assessment of base price level. It does not exclude usage of another indicator that fixes at the moment slower growth of base inflation. Modest growth of CPI since 2014 does not simplify a problem of right decision on today’s meeting.

Situation shows that inflation can fall even more. According to Department of Energy data, average price of petrol on this week is $2.38 for a gallon. This index is by 30% lower than the index of September 2014 – $3.41. Besides, if all elements of CPI will rise in September on the same value as in August, in compare with CPI of September 2014 we may see decline by 0.1%.

Taking into consideration factor of price fall on import and raw material in these calculations, CPI index could become more deeply negative. In this case, if Fed will show caution in toughening of monetary policy, prolonging this step till October or December, one of the reason of such step may be namely negative CPI index dynamics. However, it should be understood, that if current conditions for raise of rate would be inappropriate, we may expect only their deterioration.