US Inflation Rate Rises As Food and Energy Costs Increase
Last month the United States inflation rose a startling 5.6%, the first time it has rose that fast in 17 years. With this number also came a 0.8% rise in the consumer-price index, showing consumers the effect of the increase in cost for food, energy, clothing and airfare. In the previous month there was a 1.1% rise that accompanied a 0.3% rise in core inflation (excludes food and energy). This is a significant rise of 2.5% from the previous year and well surpasses the Federal Agency's "comfort zone" of 1.5% - 2.0%.
Economists are attributing this rise to recent reports of the U.S dollar and commodity prices. The dollar had increased to its highest value compared to the Euro since February and oil had dropped in price for over a week. As imports have become cheaper, the economy still shows weakness, leading to the inflation.
To help combat inflation, Bernanke could raise interest rates, a rollback of previous efforts meant to help borrowers and get money back into the economy. It is expected that the rates will not changed until the beginning of 2009 at earliest, but as inflation becomes a major issue, a rate increase may be seen beforehand.
Gary Stern, President of the Federal Reserve bank if Minneapolis, and other economists believe that if energy and other commodities continues to drop, and a slight wage increase ensures, inflation may lower in the next several quarters.
Due to this held belief, economists maintain doubt that, "the Fed will actually pull the rate trigger" as Dimitry Fleming puts it. They are thus relying on commodities to drop in price. Thursday's report showed no hope for this idea though. Last month energy rose by 4% to accompany a 4.1% increase in gasoline, 7.4% rise in natural gas prices, and a 0.9% increase in food and beverage costs. Transportation, vehicle, medical-care and clothing also saw increases ranging from 0.2% to 1.7%.
As prices rose, the average weekly wages for workers fell by 0.8% (rate adjusted for inflation), showing that as prices rise, the wages are not keeping up. Despite this, the jobless claims lowered by 10,000 a week ago, placing the levels of jobless claims well below the rate most economists use to show a recession is present.
The recent drop in prices in oil may start a trend for other commodities and help combat inflation, but as war in Georgia continues, prices may well spike up again.
DIY
Source: http://ezinearticles.com/
Added: August 20, 2008
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