By Kevin Flanagan, WisdomTree Investments

Special to the Financial Independence Hub

One of the lynchpins behind the Federal Reserve’s (Fed) decision-making process thus far in 2017 has apparently been the altered inflation landscape. The policy makers seem to be more comfortable that deflationary conditions have passed and that inflation will be “running close to the Committee’s 2 per cent longer-run objective.” Does that mean that fixed-income investors should be fearful of the inflation bogeyman rearing its ugly head anytime soon?

Calendar year 2017 did get off to a somewhat unexpected start on the inflation front. Indeed, the Consumer Price Index (CPI), perhaps the most widely followed gauge on price developments, revealed some visible upside during the winter months. According to the Bureau of Labor Statistics (BLS), overall CPI rose as high as +2.7%¹ in February on a year-over-year basis, the strongest performance in five years.

In fact, as recently as July of last year, the figure came in as low as +0.8%². The Fed’s preferred measure of inflation, the price index for personal consumption expenditure (PCE) exhibited a similar pattern, coming in at a five-year high watermark of +2.1%³ and crossing the FOMC’s mentioned 2% threshold in the process.

Core inflation slowing

Interestingly, inflation has not exhibited any further upward momentum in the months that followed. To provide some perspective, the year-over-year gains for CPI and the PCE price index have since dropped back to +2.2%⁴ and +1.8%⁵, respectively, in the latest data available. Continue Reading…