A Tale of Three Supply Shocks , National Inflation and the Region ’ S Economy

N RECENT YEARS, several supply shocks —unusual shifts in production costs —have kept U.S. inflation low by putting downward pressure on prices for certain commodities, especially computers, health care and, until 1996, energy. 1 Because the sectors producing these goods and services are important to the Eleventh Federal Reserve District, these shocks have had an impact on its economy. After examining these shocks' effect on U.S. inflation, this article analyzes their impact on the District and assesses the outlook for computers, energy and health care. U.S. inflation has remained low through early 1997, even though, since 1995, the unemployment rate has been below 5.75 to 6 percent, a range below which inflation had previously tended to rise. There are three plausible explanations for this change in behavior. One is that job uncertainty has held down wages. 2 Another is that the competitive pricing environment of the 1990s has enabled the econ