Expect Tame Inflation for Foreseeable Future | American Funds

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Investment Insights

November 2015

Expect Tame Inflation for Foreseeable Future

A portfolio manager offers his outlook for inflation in the U.S., for both the short and long term.

Video

Featuring

Wesley Phoa

Transcript

Wesley Phoa: I think it’s reasonable to expect a short-term bounce in inflation, but over the longer term we should expect it to settle down at a rate that’s pretty modest compared to what folk have been used to over the past couple of decades.

The Fed has said that it has an inflation target of around 2% — that that’s a symmetrical target which they can overshoot sometimes, undershoot sometimes, but they’d like to average around there.

Now the reality is, right now, that looking through the day-to-day, month-to-month bouncing around of energy prices, there has been a downward shock to inflation — which I think will be quite persistent — which the Fed cannot really do anything about, except to just wait until it dissipates. Inflation — core inflation, just excluding food and energy prices — is running pretty tame right now. It’s running pretty tame for structural reasons in the economy that are going to take some time to work through. I think we could expect that to persist for a few more years. It’s not something to be all that concerned about, but it might be quite some time before we see inflation sustainably averaging around that 2% target.


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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.