Americans’ Love Affair With Their Smartphones May Keep Inflation Low

The obsession Americans have with their mobile phones and apps may play a role in the slow pace of inflation, reported Reuters.

Citing a bond manager from BlackRock, Reuters reported consumers aren’t spending money on consumer electronics like cameras, radios and TVs, as well as taxis and stores, swapping them out for programs on their iPhones and other high-end smartphones.

That is creating a situation where inflation will stay low, said, Rick Rieder, BlackRock’s chief investment officer of Global Fixed Income, reported Reuters.  “Technological innovation is disrupting traditional business models of many industries, putting a lid on prices and influencing inflation in the economy overall,” he wrote in a report.

According to Reuters, the core rate of the consumer price index, which is the broadest gauge of inflation, increased at a tiny pace of 1.7 percent in May compared to last year, marking the smallest increase since May of 2015.

The way many regulators see it, advances in new consumer electronics like smartphones and the rise of eCommerce is impacting interest rates and thus inflation, and will likely keep it low.

Chicago Federal Reserve President Charles Evans said as much in news from earlier this week, when asked about Amazon’s proposed $13.7 billion buyout of  Whole Foods Market, Inc at an event in New York. He said the new competitors focused on technology that are entering big industries could result in inflation remaining low, reported Reuters.

With the softening of inflation happening, there are rising concerns that the U.S. Federal Reserve could push out another interest rate hike. Few of the policymakers think it would be worth it for the Fed to wait until the end of 2017 to consider raising interest rates again, noted the report.  

BlackRock’s Rick Rieder noted the mobile and technology focus of companies will likely continue making it hard for the Fed to hit its 2 percent target.

“This is an increasingly challenging paradigm to execute upon today in the more modern commerce era we live in,” Rieder said. “We believe both investors and policymakers need to abandon an overly rigid view of price change.”



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