The Bureau of Labor Statistics (BLS) reports that there has been an overall drop in the price of goods used to calculate the CPI and inflation. December's drop in the price of the basket, at a magnitude of 0.1%, will mark the second consecutive month in which the basket has dropped. The BLS reports that the drop is the result of a 20% decline in food and energy prices over the year. Relative to last year, the basket has only climbed 0.7%, far from the Federal Reserve Bank's 2% goal. Aside from food and energy prices, the federal reserve has met its goal in other sectors. Price growth has increased by 2.1% with food and energy excluded.
The aspect of our domestic economy that has always perplexed me is how interest rates are currently close to zero, yet we are not facing greater inflation in prices. Historically, inflation and interest rates are inversely related, so why aren't we facing greater amounts of inflation, and why is the federal reserve struggling to meet 2%. The New York Fed. believes that this is potentially the result of banks' decisions to hold excess reserves. Reserves have only increased and they are reaching all-time highs immediately following the financial crisis of 2009. Despite the fact that borrowing is cheap right now, moneys are not accessible to borrowers, thus slowing the economy tremendously.
FORBES, BLS - Excess reserves - http://www.forbes.com/sites/francescoppola/2014/01/21/banks-dont-lend-out-reserves/#e8fe05835946
US News - Inflation - http://www.usnews.com/news/slideshows/5-things-to-know-about-the-economy-this-week-1-22-2016/5
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