CAMBRIDGE, Mass.—U.S. Federal Reserve Chairman Ben Bernanke said on Wednesday policy-makers were concerned by signs of rising long-term inflation expectations but did not see a dangerous wage-price inflation spiral developing.
"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke said in remarks prepared for delivery at Harvard University.
"We will need to monitor that situation closely," he said, but added there was little sign a "1970s-style wage-price spiral, in which wages and prices chased each other ever upward", might be starting.
Bernanke said the impact of soaring oil prices has been "relatively muted" because the amount of energy used to produce a given amount of output—a gauge known as energy intensity—has fallen markedly since the 1970s.
As well, he said that policy-makers learned a lesson in the 1970s, in particular that they must keep long-term inflation expectations anchored in order to achieve a goal of low and stable inflation.
"If people expect an increase in inflation to be temporary and do not build it into their long-term plans for setting wages and prices, then the inflation created by a shock to oil prices will tend to fade relatively quickly," he said.
He said the United States and the rest of the world still faced significant challenges in dealing with rising global demand for energy, especially if steady demand growth and tight supply keep upward pressure on prices.
But he said that should also encourage conservation and boost investment in energy-saving technologies that will benefit the economy over the longer term.
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