Inflation Expectations Sagging

Sagging inflation expectations will not help the Fed achieve its 2 percent inflation goal. Business inflation expectations are down 1 tenth this month, to a year-on-year plus 1.8 percent for the January headline. This reading spent nearly all of 2015 under 2 percent with December's late peak to 1.9 percent now having fizzled. The costs reading in this report is also not welcome news at the Fed, down 1 tenth to plus 1.4 percent and back near the deep lows of 1.3 percent through most of the second half. In a separate reading that, however, may hint at emerging wage pressure, is a minus 20 reading for the profit margin index, for a steep 5 point fall from the minus 15 readings of the prior three months. The possible emergence of wage inflation is the wildcard right now given ever deeper lows for oil and commodity prices which, however, are still the main factors in the inflation outlook.