Journal Article

Capacity utilization and U.S. inflation

Abstract: Policymakers and economic analysts have recently been concerned about potential inflationary pressures in the U.S. economy. Various economic statistics show the amount of unused productive resources has been diminishing. For example, the civilian unemployment rate has decreased and the capacity utilization rate of the nation's factories has risen. If real output grows rapidly in the future, the competition for scarce productive resources could put upward pressure on wages and other production costs and ultimately could raise consumer price inflation.> Some analysts have challenged the view that productive resources are becoming so scarce that higher inflation is a danger. This challenge partly turns on whether the capacity utilization rate, which measures the percent of manufacturing capacity currently in use, is a reliable indicator of inflationary pressures.> Garner examines whether the capacity utilization rate for the manufacturing sector is still a reliable indicator of inflationary pressures. He concludes that the historical relationship between capacity utilization and inflation still holds, indicating the capacity utilization rate remains a reliable indicator of inflationary pressures.

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Economic Review

Publication Date: 1994

Volume: 79

Issue: Q IV

Pages: 5-21