David and Todd Buell start by noting that core inflation that strips out energy prices and food is on a steady rise in most of the advanced economies such as the UK, US and Europe. For instance, in the US, there has been a general price increase by 2.2% in 2015, the fastest rate from 0.3% in 2013 and 1.4% in 2014 (Buell). In the U.K, there has been a rise in the core prices from 0.8% in 2014 to 1.2% in 2015 while in Europe core inflation was 1%, higher that the broader inflation that was only 0.4% in 2015. With regards to this, central bankers are focusing on ensuring that core inflation is at equilibrium because too high inflation would destabilize the economy while too low prices of commodities would result in a situation of deflation, which is equally not good for economic growth. Worse still, deflation would make it harder for borrowers to pay off debts, which would consequently cause the central bank to lower interest rates in order to help revive the flagging economies.
Another concern put forth by David and Todd is the persistent strength of the dollar, which has pushed down the prices of imports, hence, maintaining a lid over inflation (Buell). This implies that a slight destabilization or weakening of the dollar would aid in nudging up the core inflation, which would therefore help erase the deflation fears. However, despite the possible deflation associated with the current stable core inflation rate, New York Fed President, William Dudley feels that it is a positive sign that indicates where the total inflation is expected to be shortly.
I am of the opinion that the low levels of core inflation do not pose any threat of depression as the total inflation is still on the rise. In essence, stable rates of core inflation increases consumer’s disposable income, which further leads to economic development (Slavins 98).
This article is largely related to the macroeconomics class as it focuses on the larger economic aggregates like inflation, deflation, employment and the associated monetary tools such as the central banks’ lending rates.
Works cited
Buell, David. "Deflation Fears Dim As Consumer Prices Strengthen". WSJ. N.p., 2016. Web. 3 Mar. 2016.
Slavin, Stephen L. Macroeconomics. Boston [u.a.: McGraw-Hill Irwin, 2010. Print.
