Fed's Dudley: Expect Yr-On-Yr Infl To Be Lower for 'A While'

--Will Take 6 to 10 Months for One-Off Shocks to Drop Out of Calc

--Expect Future Rise in Wages, Weaker Dollar to Support Infl Near-Term

By Jean Yung

     WASHINGTON (MNI) - It will take some time for inflation to rise back to 2%

because one-off factors that have held down overall price levels won't drop out

of the year-on-year calculation for up to 10 months, Federal Reserve Bank of New

York President William Dudley said Thursday. 

     "I do think I expect inflation to start to move higher in the medium term

but probably not get back to 2% on a year-over-year basis," Dudley told

reporters at a press briefing. 

     "We've had these very weak inflation reads for a number of months in a row

so we're not going to get to a year-over-year number of 2% until some of these

very low readings drop out of the statistics, six to 10 months from now." 

     But looking at the data sequentially, Dudley said he sees "a little bit

more upward pressure" than it has over the past four months. 

     "The labor market continues to tighten so we would expect that to

ultimately manifest itself in somewhat higher wages," Dudley said. A weaker

dollar should also support import prices, he added. 

     The Fed's preferred measure of inflation, the core personal consumption

expenditures price index, rose just 1.5% in June from a year earlier. It had hit

a high of 1.9% last October. 

     Fed Chair Janet Yellen in June attributed a recent weakening in inflation

to transitory factors such as falling prices for wireless services and

prescription drugs and emphasized that these drags would not persist.

     In his prepared remarks Thursday, Dudley said: "Our outlook anticipates a

continued moderate growth trend, with some further strengthening in the labor

market and an increase in inflation over the medium term toward our objective of

2%." 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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