News release: “The Federal Reserve Bank of New York released How Does Slack Influence Inflation?, the latest article in its series Current Issues in Economics and Finance. In a statistical analysis, authors Richard Peach, Robert Rich and Anna Cororaton find support for the hypothesis that the level of resource utilization in an economy must cross certain thresholds before it will have a significant effect on inflation. According to the authors, economic theory holds that when firms use labor and capital intensively, their production costs tend to rise, and they have more latitude to pass these cost increases through to their customers in the form of higher product prices. However, when the economy operates with slack, firms’ production costs grow more slowly, and firms have less latitude to raise prices. Thus, these relationships suggest that policymakers can use measures of resource utilization to help predict future changes in the rate of inflation.”