11/18/2004

Inflation surge: Is it here to stay?

The consumer price index hit a six-month high in October, seen in the cost of items from bell peppers to FedEx packages.
By Ron Scherer | Staff writer of The Christian Science Monitor
NEW YORK – Inflation is seeping back into the economic landscape.

Americans know all too well what it feels like if they drive, buy a mozzarella and tomato salad, or want to ship food treats to a son or daughter at college by UPS. Prices that had been stable for a long time now require shelling out more money.

A spurt in inflation has important ramifications for the economy as a whole. The Federal Reserve, which might have been thinking about holding interest rates steady next month, might raise them instead. Higher prices may make some Americans think twice about how much to spend over the holidays. And inflation is not good for the bond market, which could ultimately push up the cost of mortgages and corporate funding.

Wednesday, the government quantified some of this financial hardship, reporting that the October consumer price index rose 0.6 percent, its fastest rate since March.

The uptick in consumer prices followed a report on Tuesday that October wholesale prices leaped by 1.7 percent - the highest pace in almost 15 years.

Still, economists differ over the meaning of the news. Some believe it may signal continued inflation. They don't think businesses can hit the productivity button any more and absorb the costs.

"This is the worst inflation since the late 1990s," says Roger Kubarych, chief economic Adviser for HVB Americas. "And the Fed was tightening considerably then."

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