Paul Donovan, chief economist at UBS, points out that although US February CPI data predates recent market turbulence, it is still crucial for Federal Reserve policy. He contends that central banks should only respond to significant price increases and anticipates that underlying inflation pressures would be mild. Donovan emphasizes that the Fed is ill-equipped to deal with isolated market disruptions like possible problems with Gulf shipping.
Fed restrictions and benign CPI
"The US February CPI is important for policy, but it comes before this volatility. According to today's figures, underlying inflation pressures should be modest.
"General price increases, or inflation, should prompt central banks to respond since they indicate an economic imbalance. They do not have the policy tools to respond to problems in a single market. It is difficult for Fed Chair Powell to direct the FOMC to carry out mine sweeping operations in the Gulf.
"Perceptions of inflation, which are reliant on frequent purchases, are the foundation of the US affordability dilemma."
"Consumers will notice increasing prices for certain supermarket products, but the over 27% spike in gasoline prices from January lows will not register in today's report."
Fed restrictions and benign CPI
"The US February CPI is important for policy, but it comes before this volatility. According to today's figures, underlying inflation pressures should be modest.
"General price increases, or inflation, should prompt central banks to respond since they indicate an economic imbalance. They do not have the policy tools to respond to problems in a single market. It is difficult for Fed Chair Powell to direct the FOMC to carry out mine sweeping operations in the Gulf.
"Perceptions of inflation, which are reliant on frequent purchases, are the foundation of the US affordability dilemma."
"Consumers will notice increasing prices for certain supermarket products, but the over 27% spike in gasoline prices from January lows will not register in today's report."
