Fed sees inflation risk even as growth slows

NF Reporter · 12-02-2006, 07:40 AM

Reuters - Federal Reserve policy-makers on Friday said inflation remained a risk to the U.S. economy, even as data showing factory activity falling for the first time in 3-1/2 years indicated growth was slowing.

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waltky · 04-15-2008, 10:43 PM

Now recession and inflation

Surge in energy prices stokes inflation
Tues., April. 15, 2008 • Economic slowdown normally tames prices, but these aren't normal times

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When the economy slows down, the resulting drop in demand normally takes some of the pressure off inflation. But these are not normal times: Even as the economy is slumping, oil prices are rising and food prices are jumping. All of which could spell more trouble for consumers in the coming months. Tax filers this week can look forward to some relief from a massive government rebate program. But that one-time shot in the arm won’t help consumers — or the economy — if energy and food prices keep rising.

On Tuesday, oil prices surged to a new high, passing $113 a barrel, and the government reported that prices at the wholesale level jumped 1.1 percent in March. “These are going up way too rapidly,” said economist Joel Naroff of Naroff Economic Advisors. “This is the money that the average person has to spend, and as a result they don’t have a lot of money left over for other things.”

Food and energy prices tend to move up and down more quickly than other goods, but lately they’ve only been moving in one direction. In the last three months, gasoline prices are up by a third and food prices are up 10 percent. Analysts take some comfort in the fact that the so-called “core" inflation rate has — so far — remained in check. The hope is that higher food and energy prices haven’t yet spilled over into the prices of other goods.

But if you break down the list of those goods, the price increases have been mildest in so-called capital goods — business machinery and equipment. Price of consumer goods other than food and energy are up 5.5 percent in the past three months. Analysts are expecting that trend to show up in the Consumer Price Index due out Wednesday.

More Surge in energy prices stokes inflation - Eye on the Economy - MSNBC.com

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U.S. seeing worst food inflation in 17 years
Tues., April. 15, 2008 - Food vendors are forced to explain higher prices; poor squeezed

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Steve Tarpin can bake a graham cracker crust in his sleep, but explaining why the price for his Key lime pies went from $20 to $25 required mastering a thornier topic: global economics. He recently wrote a letter to his customers and posted it near the cash register listing the factors — dairy prices driven higher by conglomerates buying up milk supplies, heat waves in Europe and California, demand from emerging markets and the weak dollar.

The owner of Steve’s Authentic Key Lime Pies in Brooklyn said he didn’t want customers thinking he was “jacking up prices because I have a unique product.” “I have to justify it,” he said. The U.S. is wrestling with the worst food inflation in 17 years, and analysts expect new data due on Wednesday to show it’s getting worse. That’s putting the squeeze on poor families and forcing bakeries, bagel shops and delis to explain price increases to their customers.

U.S. food prices rose 4 percent in 2007, compared with an average 2.5 percent annual rise for the last 15 years, according to the U.S. Department of Agriculture. And the agency says 2008 could be worse, with a rise of as much as 4.5 percent. Higher prices for food and energy are again expected to play a leading role in pushing the government’s consumer price index higher for March.

Analysts are forecasting that Wednesday’s Department of Labor report will show the Consumer Price Index rose at a 4 percent annual rate in the first three months of the year, up from last year’s overall rise of 2.8 percent. For the U.S. poor, any increase in food costs sets up an either-or equation: Give something up to pay for food.

More U.S. seeing worst food inflation in 17 years - Stocks & economy - MSNBC.com

waltky · 04-16-2008, 06:03 PM

Economy gettin' weaker...

Fed: Economy has weakened further
April 16, 2008: According to the Beige Book released Wednesday, the economy continues to struggle with the mortgage meltdown, credit crisis and weak employment.

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WASHINGTON -- The country's economic health deteriorated further in the early spring as shoppers buckled under the strains of the housing and credit debacles and a weaker employment climate. Manufacturers and other businesses, meanwhile, were walloped by zooming prices for energy and other raw materials. However, their ability to jack up retail prices to customers was mixed, with some companies restrained by competitive pressures, according to the Federal Reserve's new snapshot of nationwide economic conditions released Wednesday.

"Economic conditions have weakened," the Fed report stated. Many analysts believe the economy has fallen into a recession, predicting that economic activity contracted in the first three months of this year and is still ebbing now. Even Fed Chairman Ben Bernanke recently acknowledged for the first time that a recession was possible. That was a rare utterance of the "r" word for a Fed chief. The government later this month will report on the economy's first-quarter performance.

The report underscored the challenges facing Bernanke and his colleagues as they fight to keep the economy from sinking into a deep recession, while at the same time avoiding a flare-up of inflation. The report will figure prominently when the Fed meets next on April 29-30 to decide its next move on interest rates. The Fed, which has been cutting rates since last September to bolster the economy, turned much more forceful in January, when conditions took another turn for the worse. Many economists believe the Fed will lower rates yet again at the April meeting to help shore things up.

Even with the rate reductions, though, consumers have turned more cautious, the Fed report suggested. Consumers are major shapers of the economy because their spending accounts for such a big chunk of overall economic activity. "Consumer spending was characterized as softening across most of the country, with some districts reporting year-over-year declines in retail and or auto sales," the Fed report said. Merchants - other than auto dealers - reported that sales were "sluggish or declining" in 10 of the Fed's 12 regions, the report said. With inventories of unsold goods starting to pile up, retailers in the Richmond, Va., and San Francisco regions have canceled orders, the report noted.

Inflation takes its toll

Red Grant · 04-16-2008, 11:08 PM

So waltky, what do you think the feds should do?

Lower the rates, and makes the dollar weaker, which stokes even more inflation, which could make dollar even weaker, stokig even more inflation, wrecking the economy for long term?

Jack up the rates, makes the dollar stronger, which will tame the inflation, which could make the dollar even stonger, making U.S. exports even less competitive(but which would also encourage U.S. business more resourceful and competitive in the long run), which could increase the unemployment rate in the short run?

waltky · 04-17-2008, 05:37 AM

Maybe something like this:

China raises reserve requirement to curb inflation
April 16, `08 - China's central bank Wednesday for the third time in a year raised the reserve ratio of banks in an effort to curb excess liquidity and ease inflation.

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The reserve requirement ratio would be raised by 0.5 percentage points to a record high of 16 percent as of April 25, the People's Bank of China (PBOC) said in a statement on its website. 'The rise, a further materialization of tight monetary policy, is aimed at strengthening liquidity management in the banking system and steering bank credits to grow reasonably,' the PBOC said.

The PBOC earlier raised the reserve requirement Jan 25 and on March 25, on top of ten such moves in 2007. It also raised interest rates six times last year. The new measure was unveiled just two and a half hours after the release of first quarter economic data showing inflation surged 8 percent, although it eased to 8.3 percent in March from the 12-year-high of 8.7 percent in February.

'An increase in the reserve ratio by a small margin will help to stabilize inflation expectations, while maintaining stable economic growth,' said Peng Xingyun, a finance researcher at the Chinese Academy of Social Sciences.

More China raises reserve requirement to curb inflation

Red Grant · 04-18-2008, 09:16 AM

What do you think of something like that happening, given the fact that both Dems and Republicans want to some PR bs regarding the Housing crisis?

Do you think Govt should simply let these people lose their houses? After all, no body put a gun to their heads to buy those houses.

P.S. Do you miss MBIG?