Economists worried about US inflation

Tuesday, 23 November 2010 00:47 - - {{hitsCtrl.values.hits}}

Washington (Reuters): Steps by the Federal Reserve to pump more money into the U.S. economy through government bond purchases could stoke inflation, even though growth will remain moderate through 2011, a survey showed on Monday.

The National Association for Business Economics (NABE) said its 51-member forecasting panel continued to rank inflation as a bigger worry than deflation. The survey was conducted between October 21 and November 4.

The Fed’s November 3 decision to buy an additional $600 billion worth of government bonds to stimulate the economy and prevent prices for spiraling lower has been criticized both at home and abroad.

About a third of NABE panelists view the Fed’s second asset purchasing program as somewhat lessening the risks of deflation, while another 33 percent saw the step as risking inflation.

Still, they forecast the Fed’s preferred measure of consumer inflation -- the personal consumption expenditures price index excluding food and energy -- to rise to 1.5 percent by the end of 2011 from a projected 1.0 percent this year.

That is below the Fed’s considered comfort zone between 1.7 percent and 2.0 percent. Inflation remains subdued as the economy slowly recovers from the worst recession since the 1930s. Core consumer prices rose 0.6 percent in October from a year ago, the smallest increase since records started in 1957.

NABE panelists tweaked the gross domestic product (GDP) growth forecast for 2010 and kept the estimate for 2011 unchanged at an annual rate of 2.6 percent.

The economy is now seen expanding at a 2.7 percent rate instead of 2.6 percent this year, still below the 3.5 percent many analysts say is needed to start lowering unemployment.

“Projections for real GDP growth remain sub-par through the first quarter of 2011, but accelerate gradually through the forecast period,” said NABE President Richard Wobbekind, associate dean of the Leeds School of Business at the University of Colorado.

“For next year as a whole, GDP growth is expected to be moderate. Factors restraining growth going forward include ongoing balance-sheet restructuring by consumers and businesses, and a diminished contribution to GDP growth from inventory restocking and government stimulus.”

The panelists predicted a gradual improvement in the labor market, with monthly payroll gains forecast to average less than 150,000 until the latter half of 2011. The unemployment rate was seen above 9.5 percent through the first quarter of 2011, dipping to 9.2 percent by year-end.

A tepid housing market recovery was forecast, with prices rising somewhat in 2011.