Markets Watch, Warily, for a Small Bump in Inflation; Main Price Gauges Are Hovering Near Historic Lows and Are Poised to Drift Upward
The next small steps up in inflation could set off big tremors in financial markets.</br></br>The two main U.S. inflation gauges, the Labor Department's consumer-price index and the Commerce Department's personal consumption expenditures price index, are hovering near the lowest levels ever seen outside of recessions.</br></br>Both sit poised to drift upward. Wholesale and import prices show signs of picking up, suggesting some inflation in the pipeline, and some items that briefly declined in price over the past year--such as prescription drugs, financial fees and garments--have started climbing again.</br></br>"The underlying trends seem to be more positive," said Michael Pond, global head of inflation market strategy at Barclays Capital. "It's not alarming. We won't all of a sudden see very high inflation. There's just a bit more upside than what we've seen over the past year."</br></br>Normally, a move of a couple of tenths of a percentage point in the inflation measures wouldn't matter much to anyone. But the stakes are high now as Federal Reserve officials justify their plan to keep short-term interest rates near zero in part because inflation is running so far below their 2% objective.