Inflation Data Reduce Obstacles to Stimulus But Amplify Risks
The bigger disconnect between Main Street and Wall Street raises the possibility of financial instability and policy complications.
Stimulus is on the way.
Photographer: Michael Ciaglo/Getty Images
The economic and financial data so far this week have highlighted once again the enormous contrast between the reported inflation rate for goods and services and the one for asset prices. It is part of a much bigger and consequential disconnect between the economy and financial markets, or what is commonly referred to as Main Street versus Wall Street. In the short term, it opens a bigger window for significant additional fiscal stimulus to supplement ultra-loose monetary policy and financial conditions. But it does so at the risk of amplifying the policy, financial stability and political risks that await us down the road.
For the second consecutive month, the core consumer price index, which excludes volatile food and energy costs, was flat for January; the core annual inflation rate was 1.4%, down from 1.6% in December. Both outcomes were below analysts’ median forecast of a gain of 0.2% month over month and 1.5% year over year. The overall inflation rate rose 0.3% from the previous month and 1.4% from a year earlier.