Will inflation escalate?
*Financial Times, by Daniel Pimlott, January 16, 2008
“Prices for US consumers rose at a faster than expected pace in December, pushing inflation to its highest yearly increase since 1990. But inflation concerns are likely to take a back seat as the Fed seeks to avert a recession, economists said.
The rise in inflation over the whole of 2007 was 4.1 per cent, the highest rise since a 6.1 per cent jump 17 years ago. This was still less than in November when the year on year price rise was 4.3 per cent, lifted by soaring energy prices.
The higher-than-expected figure raises fears of stagflation, as slowing growth in the US economy is complemented by higher rates of inflation.
The Fed continues to remain concerned by inflation boosted by record oil prices, and the rapidly rising cost of food and other commodities, boosted by demand from fast-growing China and India.
However, the threat of a recession in the US, sparked by a two year downturn in the housing market and a related credit squeeze, is of greater concern to the Fed.”
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