Inflation to remain contained in 2013

With consumer prices around the half of the Federal Reserve's 2% target, the U.S. central bank is facing a serious test, and some experts even believe that the Fed will have to increase its asset-purchase programme. According to American Century Investments, inflation rate was lower during the last several years, and they expect it to remain largely contained in 2013. During 2013 the inflation rate is likely to increase 1.5-3%. Since 2008, when the Fed has cut interest rates to zero, it has bought more than $2.5 trillion in bonds to bolster an anemic economic recovery and speed up the decline in the closely-watched unemployment. Despite all bold actions done by the Fed, the Personal Consumption Expenditures (PCE) price index has fallen to a 3-1/2 year low of 1.0%. However, the Fed officials do not view the slowdown as a signal of a worrying deflationary threat.

"They say that they're going to set monetary policy in a way that ensures future inflation will be 2.0 per cent," said Justin Wolfers, an economics professor at the University of Michigan's Gerald Ford School of Public Policy. "Right now, they expect it to be lower than that, and unemployment to be unconscionably high, so the Fed's own framework says that they need to take more stimulative action."