Inflation to Come in Housing, Healthcare and Wages

By David Shulman, Senior Economist UCLA Ziman Center for Real Estate and the UCLA Anderson Forecast

For the past year, U.S. inflation has remained at very low levels. But that is about to change, led by price increases in housing and healthcare, and by modest wage increases. And that will eventually cause the Fed to abandon its zero interest rate policy.

Inflation, for now, is quiescent. With the year-over-year increase in the personal consumption deflator – minus food and energy – the Fed’s preferred inflation gauge, is now running at 1.1%, well below the 2% target. (See Figure 1) Indeed there is even fear of deflation in the air. With inflation practically nonexistent and with the unemployment rate still running at a high 6.7%, many market participants now believe that the Fed’s zero interest rate policy that began in December 2008 will continue well into 2016 consistent with its dual mandate to maintain maximum employment and the purchasing power of the dollar.


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