Mester Says Some Gauges Mitigate Concern Inflation Too Low

Loretta Mester, the next president of the Federal Reserve Bank of Cleveland, said some gauges of inflation alleviate concerns that prices are rising too slowly.

A measure of prices that don’t change very often, known as sticky prices, “has been relatively stable around 2 percent,” said Mester, who succeeds Sandra Pianalto as Cleveland Fed president on June 1.

“This paints a more benign view of recent inflation, one that could have implications for the appropriate path of monetary policy,” said Mester, who is leaving her job as Philadelphia Fed’s research director. She will vote on policy this year.

A gauge of inflation watched by the Fed showed price increases moved closer to the Fed’s goal of 2 percent. The personal consumption expenditures price index rose 1.6 percent in April from a year earlier, the biggest increase since November 2012, according to a government report today. The core measure, which excludes food and fuel, rose 0.2 percent from the prior month and was up 1.4 percent from April 2013.

Separating out services inflation also points to less risk of falling prices, said Mester, a top adviser to Philadelphia Fed President Charles Plosser, who is among Fed officials most concerned about long-term inflation risks.

“If you look at core prices in the service sector, inflation has been relatively stable at 2.25 to 2.5 percent since 2012,” she said. “It is the less sticky core goods prices that have decelerated and have brought the broader measures of inflation down below” the Fed’s goal.

The Federal Open Market Committee said April 30 that inflation has been running below the panel’s objective, which is 2 percent, though inflation expectations have remained stable.

As Cleveland Fed president, Mester will vote every other year on monetary policy, rotating with Chicago Fed President Charles Evans. Her district oversees Ohio, western Pennsylvania, eastern Kentucky and parts of West Virginia.

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