Fed President Rosengren : Not Letting It (Deflation) Happen Here

While it may be too early to draw firm conclusions about monetary policy at the zero bound for short-term interest rates, I would like to draw some tentative conclusions.

• First, a policy of gradually adjusting monetary and fiscal policy, as conducted in Japan after deflation first occurred, may not be as effective as an active policy response taken before deflation has become embedded in the economy.  Of course, it should depend on the given situation and incoming data.

• Second, while monetary policy may have difficulty fully offsetting a severe shock when the zero bound is hit, there are still important channels for monetary policy to use to mitigate the negative shocks.

• Third, it is not a coincidence that in Japan, the United States, and Europe these economic problems have been encountered in conjunction with banking and financial market problems.  Analysis of monetary policy with the zero bound needs to more richly capture the aspects of the financial sector that are major contributors to economic difficulties.

• Finally, we all recognize that conducting unconventional monetary and fiscal policy at the zero bound requires political will.  This of course must be factored into any analysis of policy options.

Source : modeledbehavior

Clothing and footwear deflation slows to 0.7% in September

Annual deflation in clothing and footwear slowed to 0.7% in September from 2.6% in August, according to the British Retail Consortium (BRC).

The BRC found that overall shop price inflation rose to 1.9% in September compared with 1.7% the month before, making it the highest level for five months.

Non-food inflation edged up 0.7% from 0.5% in August, driven by a rise in cotton prices, which affected the cost of clothing.

BRC director-general Stephen Robertson said that clothing is “still cheaper than a year ago, and 15% cheaper than five years ago, but rising cotton costs have slowed the pace of those price falls”.

The BRC said that annual deflation in the clothing and footwear category slowed to 0.7% in September from 2.6% in August.

It warned that non-food inflationary pressure will return in the New Year as higher cotton prices are factored into spring 11 collections. BRC also said retailers who specialise in low-cost, fast-fashion clothes are “likely to face the greatest challenge” as they balance rising pressures and try to remain competitive.

Robertson added that “past increases in commodity prices are now putting pressure on overall shop prices but the worst of this may have passed” as “weak demand, poor consumer confidence and strong competition between retailers” is likely to “hold back shop price inflation for the remainder of the year”.

Source : DrapersOnline