Inflation is a matter of when, not if

Wage growth isn't the only driver here. Other pressures could lead to higher prices in the near term.

By MSN Money Partner May 12, 2014 12:48PM
By Alex Rosenberg, CNBC

At this point, most experts agree that inflation is set to rise. The question is when. And a clue could come this week, when the Bureau of Labor Statistics releases the latest readings for both the Consumer Price Index and the Producer Prices Index for Final Demand.

"I'm looking at these numbers with great interest," said Jim Iuorio of TJM Institutional Services. "If you look back at the last set of unemployment data we got, the wage growth was somewhat stagnant. And then we saw a labor number that contradicted that.

"So I think it's time to become keenly interested in inflation. I'm not saying it's time to become very concerned with inflation. We could know that later in the week, though."

A falling unemployment rate is generally expected to lead to a rise in wages, as companies have to pay more to their workers due to the tighter supply, and this is expected to lead to widespread inflation. But so far, that simply hasn't happened. Average hourly earnings have only risen by 4 percent over the past two years, even as the unemployment rate has fallen from 8.2 percent to 6.3. Incidentally, Standard & Poor's 500 Index ($INX) earnings have risen more than 9 percent from Q1 2012 to Q1 2014, according to FactSet.

For Deutsche Bank senior US economist Carl Riccadonna, part of the issue is that we haven't yet seen the impact of the labor market's growth.

"We know we crossed above trend growth toward the end of last year. And inflation tends to lag by about six quarters, so toward the end of the year we will see inflation pressures start to tick up. But that will really represent a lagged response to the recent growth acceleration, rather than the fact that we're just getting to a certain level unemployment," Riccadonna said.Image: Inflation © Stockbyte, Getty Images 

"Still, by that time, we'll probably be closer to 5.5 percent on the unemployment rate, and that will lead to meaningful inflation pressures as well."

While Riccadonna is not overly concerned about inflation, he has little doubt that it's on the horizon.

"We're going into a period when there are going to be persistent upward inflation pressures. Not next week, and probably not even in the first half of this year. But we'll see increasing wage-driven inflation pressures as we go deeper into the back half of this year."

Of course, wage growth isn't the only driver of inflation. And some say other pressures could lead to higher prices in the nearer-term.

"Rents are rising a lot, and with 35 percent of the population renting -- the highest since 1995 -- rents are very important," said Peter Boockvar, chief market analyst at the Lindsey Group. "Throw in commodity prices, and you have the potential for inflation numbers to start surprising to the upside."

Economists aren't expecting to hear too dramatic this week. A price rise of 0.3 percent is expected in April's CPI data, and a 0.2 percent rise in the PPI-FD, according to economists polled by Reuters.

And with the 10-year Treasury note yielding just 2.6 percent, it appears that fixed income investors are none too worried about the prospect of inflation, either.

But if the economy continues to grow, the labor market continues to tighten, and certain key pockets of the US economy start to put serious pressure on prices, the inflation outlook could end up changing dramatically between now and the end of the year.

More from CNBC


May 12, 2014 3:07PM
Inflation has already hit us, big time.  Has anyone at MSN checked gas prices, beef prices, food prices in general, heating oil prices, etc. etc. lately?  Of course, the government leaves some of these prices out of the consumer price index!
May 12, 2014 2:57PM
Who are you going to believe ?

Fedsters or the lying price tags.

May 12, 2014 3:23PM
it isn't the 1 percent causing inflation. its the weasels you put in office . 
May 12, 2014 3:23PM
"If you like your current rate of inflation, you can keep your current rate of inflation" - The Lying Socialist
May 12, 2014 3:44PM
Dah!! Like we are already suffering the effects of inflation! Rising food and meat prices, higher gasoline prices, higher utility prices due to higher oil prices, high healthcare deductibles and costs, but, no one is getting raises to cover all this. No more middle class and no more American Dream, no more living in the land of prosperity unless your an illegal alien living off our tax money. Is this suppose to be new or old news?
May 12, 2014 3:14PM
Inflation can only have so much effect when you can't afford to buy anything
May 12, 2014 4:15PM

What idiot thinks we have yet to be affected by inflation. The inflation rate does not include food, heat, oil, etc. So as long as you don't have to eat or go anywhere (drive). And as long as you don't need heat in the winter....Well then you should be just fine.


This should be known as "the corpse" inflation rate not the "core" inflation rate because you'd have to dead to benefit from low "inflation".

May 12, 2014 3:23PM
The federal reserve is still buying most of the ten tear treasury notes, (the government is buying its own debt with conjured money) so 2.6%for the ten year t-bill is a totally fed manipulated rate.
May 12, 2014 4:49PM
If I could afford a beefsteak,  I'd go to the store to buy it,  if I could afford the gas.
May 12, 2014 4:32PM
Wage growth ? Did you numb nuts at MSN get a raise cause sure as hell no one outside of a government official has !  
May 12, 2014 3:24PM
Obo is on his knees praying his economy stinks so bad it holds off till he's out of office.
May 12, 2014 4:10PM
The anti-Christ is licking his lips as the "chosen ones" pray for financial stability.
May 12, 2014 4:31PM

ALEX ROSENBERG -- You just can't bring yourself to blame the obvious culprit, the Federal Reserve Bank's inflationary policies.  Quantitative Easing!  In April 2009, former Fed Chief Ben Bernanke, trying to spite then-Rep Ron Paul in a congressional hearing, snickered that devaluing the dollar reduces the value of debt owed to foreign governments.  China has been latently angry at the U.S. ever since!

You're asking for trouble, though.  The narrative is supposed to be that we NEED MORE inflation.  New Fed Chief Janet Yellen wants to push inflation UP to 2%, never mind that it may be more than 10% annualized, in reality.  The Commerce Dept will keep reporting 1% annualized inflation.  If a number comes out too high, why they merely change the formula to keep it in line!

Inflation is killing low income people with the resultant higher cost of living and higher cost of doing business, which drives up unemployment.  Worse yet, stimulus necessarily leads to recession.  The 1st quarter GDP came out around -0.3% to -0.6%.  Does this lead to more inflation?  Sure, it does!  Yellen is going to feel compelled to push up the QE.

May 12, 2014 6:03PM
They don't include food and gasoline.  I guess we don't have to eat or drive anyplace.  I just don't know what we Senior Citizens are going to do!  The price of meat is out of sight, eggs are very high, milk - forget it!  Thank you Obama & the rest of the Liberals.  You sure have done a fine job.  (Yes, that is sarcasm!)  Now they want to destroy the coal-fired power plants.  I live in Ohio & 80% of our electricity comes from coal-fired plants.  What are we supposed to do?  It really worries me - we have a small (5 room house) that is all electric.  No natural gas out here in the boonies!  And electric baseboard heat at that.  The monthly cost, year around, runs on an average $260.00 a month.  If the EPA has their way, God help us! 
May 12, 2014 5:35PM
Inflation has been here since 2009, it's called QE. By it's very nature, the definition of inflation is an increase in the money supply which is what QE is. The inflation is noted in asset allocations such as the stock market, real estate, food, gas. The other part of inflation has been exported overseas through a cheaper dollar since it's the world reserve currency. Look at some emerging markets like Turkey, Argentina, and India their currencies tumbled. Most dollars are held overseas.
May 12, 2014 5:35PM
In a couple months, msn will have a follow up article explaining why inflation will stay low, followed by an article warning of deflation and why it's important to go out and buy a new car as a combative tool to get this country back on track. They need to maintain their credibility by covering all the possibilities. Their goal after all is to ensure they keep the public well informed.
May 12, 2014 6:52PM
The Obama Dollar - printed on Chinese rice paper with Chinese red ink #1 - looks good in a wheelbarrow.
May 12, 2014 5:57PM
This article is humbug.  It occurs when journalists who never studied economics consult "experts" working for large financial firms who also never studied economics.  The journalists then repeat the common knowledge they are fed by the PR departments to attract not-so-sophisticated "investors."

Today there is no inflation on the foreseeable horizon from too much spending or any other of the many causes of inflation.  Anyone who believes this article needs to read something from a real expert before giving the "expert" any money.  Try "Inflation, Unemployment, and Government Deficits" or something similar.  Amazon has a number of e-books on the subject.

May 12, 2014 5:36PM
Inflation started rising in 2008 and is not going to stop until after 2016 and only then if the American voters elect common sense logical people into office that have had to at some time in their life lived off a paycheck instead of being a spoon fed politician. Party affiliation is totally irrelevant, it is the individuals that are elected that is going to bring sanity back into the equation.
May 12, 2014 3:05PM
And the 1% seem to be doing just fine with their record profits and such. Don`t worry people, they will have more money to buy elections with.
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