Inflation not on a sustained downtrend, Fed's Mester says

A top US rate-setter said she continues to see a need for further interest rate hikes, telling an audience that recent soft readings on inflation were not pointing to a sustained drop in prices.

In remarks prepared for a speech to the Community Bankers Association of Ohio, Federal Reserve bank of Cleveland president Loretta Mester said: "some of the weakness in recent inflation reports reflects special factors, like the drop in the prices of prescription drugs and cell phone service plans.

"It may take a couple of months for these factors to work themselves through, but these types of price declines aren't signaling a general downward trend in consumer prices."

In Mester's opinion, it was very important that policymakers' stick to a systematic approach when deciding on policy, adding that the "gradual" approach to tightening policy was the correct one in order to promote a sustained economic expansion.

"My assessment is that the conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2 percent on a sustained basis."