ECONOMIST WARNS: Deflation Is Coming To The US

Deflation is coming. 

In a new note to clients, BNP Paribas’s Laura Rosner writes that low oil prices could drag headline inflation in the US into negative territory in the first two quarters of 2015.

Rosner writes:

Under our new forecast, the quarterly y/y rate of headline inflation falls below zero in Q1 and Q2 2015 (-0.3% and -0.4%, respectively). We still expect the energy price shock to have only transitory effects (maximum impact in 2015) and limited pass through into core, though we will be re-evaluating that assumption over time. Our forecast assumes household and business inflation expectations remain reasonably well-anchored. 

In the note, Rosner says core inflation, which strips out the more volatile costs of food and energy, is expected to be 1.8% and 1.7%, respectively, in the first two quarters of 2015. Rosner expects gas prices fell 11.2% in December. 

Of course, this basically means that they expect inflation to stay more or less the same, other than gas prices, which are plummeting. 

So this could actually be a good thing for the US economy.  

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