Despite the Federal Reserve’s latest quarter-point tightening and indications that more such tightening is on the way, monetary policy remains “accommodative.” And it is likely to remain that way, despite mounting evidence of new inflationary pressures, Moody’s Investors Service’s John Lonski wrote in his weekly wrap-up on Monday.
“Seldom, if ever, has the federal funds rate trailed the annual rate of core [Consumer Price Index] inflation amid rampant industrial commodity price inflation,” Lonski wrote. “An accommodative monetary policy implies that businesses and households are better able to accommodate higher commodity prices through higher prices for other goods and services, including labor.”
Down from May’s 14-year high 5 percent increase, the annual rate of Producer Price Index inflation remained at 4 percent for a second consecutive month in July. The annual rate of core Producer Price Index inflation dipped from 1.8 percent in June to 1.7 percent in July, according to Commerce Department figures cited by the Moody’s analyst.
The annual rate of core intermediate materials price inflation rose to 6.4 percent in July for its fastest pace since the 6.9 percent of August 1995, while the annual rate of core crude materials price inflation rose from June’s 20.8 percent to July’s 28.9 percent, he added.
The very rapid pace of industrial commodity-price inflation — including recent year-to-year price advances of percent for crude oil, 45 percent for fuel oil, 27 percent for gasoline, 11 percent for natural gas, and 52 percent for Moody’s industrial-metals price index –“reflects brisk global activity and favors a rising trend for core price inflation.”