US Inflation Debate Continues as CPI Comes in Below Expectations

CPI inflation data for the US came in under expectations at 1.4% year on year. The release was positive for stock futures and Treasury bonds but overall, a lower than expected reading might not matter that much at the moment anyway.

One of the main reasons is the $1.9 trillion stimulus package. As Democrats prepare to bypass Republicans, it’s looking more likely that the package is going to be passed by March.

There have been warnings that such a large stimulus package could create a strong pickup in inflation this year, which could cause the world’s biggest economy to overheat.

I do think inflation will increase but I don’t see it as being an issue that will get out of control. Instead I think the current issues are of more importance.

The new Treasury Secretary Janet Yellen, stands behind the stimulus package and believes the costs and risks involved in the package are not as severe as the costs and risks of not doing anything. Basically she believes a slow recovery contains more risks than an overheating one. One of the things she points to is the employment level, which Yellen has stated could be back to full employment by next year with the right package delivered quickly.