Bernanke Sees Temporary Inflation Gain From Commodities

Federal Reserve Chairman Ben S. Bernanke said the surge in oil and other commodity prices probably won’t cause a permanent increase in broader inflation and repeated that borrowing costs are likely to stay low.

Experience with such price gains in recent decades, along with currently stable labor costs, suggests a “temporary and relatively modest increase in U.S. consumer price inflation,” Bernanke said in prepared remarks today for his semi-annual monetary policy testimony before the Senate Banking Committee in Washington. He reiterated the Fed’s outlook that while growth will accelerate this year, he still wants to see a “sustained period of stronger job creation.”

The comments suggest the Fed will stay on course to complete $600 billion of Treasury purchases through June in a bid to reduce an unemployment rate persisting at 9 percent or higher for almost two years. Bernanke didn’t say what the Fed’s next step will be after finishing the bond buying under record monetary stimulus that has been criticized by Republicans he’s facing today and tomorrow.

Even with his inflation outlook, “sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored,” said Bernanke, 57, a former Princeton University economist. “We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability.”