Most Popular ArticlesSeptember 29, 2009
Investors should expect extremely low inflation – just slightly above zero – for the indefinite future, according to Connie Everson, the Managing Director and co-founder of the Capital Markets Outlook Group, a Boston-based economic consulting firm that serves institutional investors throughout the world. Everson delivered her remarks to an audience of financial analysts in Boston last Thursday.
“For many investors, it’s taken as a given that government spending will lead us to inflation,” Everson said. Stagnant flows in the credit markets and sluggish economic activity, however, lead others to assume that we are instead facing deflation – or at least an extended period of low interest rates.
But Everson said that excess capacity in the economy will dominate, driving low inflation. “Inflation is really the opportunity for industries in many sectors to raise prices,” she said, adding that current and foreseeable economic conditions will prevent that from happening.
One classic measure of excess capacity is the unemployment rate, and Everson provided the data below, which shows the level of unemployment relative to an assumed full employment level of 4.5%. 
As long as unemployment remains high, wage-driven inflation will be impossible, she said.
Industrial capacity utilization is the other classic metric by which to assess the likelihood of inflation. It reached a 50-year low earlier this year, as shown by the following graph.
Display article as PDF for printing.
Would you like to send this article to a friend?
Remember, if you have a question or comment, send it to .
