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Here Are Six Forces Zervos Says Will Hold Down U.S. Inflation

(Bloomberg) -- U.S. central bankers monitoring any pickup in price pressures on companies and consumers can relax. Here are six factors that are likely to keep inflation tame, according to Jefferies LLC chief market strategist David Zervos.

“There’s a lot of disinflationary forces and we’ve been missing inflation for five or six years now," he said on Bloomberg Television Tuesday. “It’s hard for me to get too excited about this inflation story.” And these forces aren’t going away any time soon:

1. Demographics. The job market is nearly tapped out, with new entrants slowing to a trickle. The lack of labor-force growth, compared with previous decades, keeps the economy from expanding at a faster pace that would spur inflation.

2. Technology. Companies, in particular behemoths such as Inc., are constantly evolving to sell improved products and services at cheaper prices. That will keep costs for consumers down, even if demand picks up.

3. Corporate tax reform. The tax cuts that the Trump administration and Republican lawmakers enacted in December may be a fiscal stimulus, but the funds can be passed on to consumers in the form of lower product prices -- adding to disinflationary forces.

4. Deregulation. A theme that’s continuing this year from 2017 is loosening rules on industries. Similar to a tax cut, it’s disinflationary, Zervos said.

5. Federal Reserve tightening. The central bank has raised interest rates six times since late 2015, and is widely expected to hike again in June. On top of that, the Fed has been shrinking its balance sheet since October. That will slow down inflation.

6. Debt. Americans have a lot of it, whether it’s consumers, companies, governments or banks. This leverage is a downward force on inflation, Zervos said.

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