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February 26, 2008
Inflation Trap Looms!
Surprise, surprise, inflation remains a reason for concern.
On Tuesday the government announced the Producer Price Index rose 1.0% in January, while core inflation, stripping out food and energy costs, rose 0.4%. The PPI measures inflation pressures before products reach the consumer.
The results match the core inflation increase in February 2007, and the last time it was higher than that was
November 2006. Economists polled by Thomson's IFR Markets had expected overall wholesale inflation to rise just 0.3%, while core inflation was expected to increase 0.2% in the month.
"It was a lot worse than expected," said David Wyss, chief economist at Standard and Poor's, "and it shows the problems the Fed has with fighting inflation while also fighting recession."
To keep the economy from slowing too much, the Federal Reserve has been cutting interest rates, but in doing so it risks creating a monetary environment conducive to inflation. (See: "Inflation Trap Looms For Fed")
Posted by Post Scripts at February 26, 2008 08:29 AM