Inflation Spike Highest In 17 Years

Inflation Spike Highest In 17 Years

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You have to go all the way back to 1991 to recall an inflation spike as high as the one we’re going through right now. Last Wednesday, the U.S. Labor Department confirmed what so many Americans already know: inflation is up 5% over the same period in 2007. Leading the way are gasoline and food Money Stock Chartprices which are currently at record levels.

This news comes on top of other findings which reveals that wages are not keeping up, increasing on average 3.4% over the past twelve months. Already hit hard by higher gas and food prices, many consumers are also paying more for their mortgages and finding that many other consumer products are also on the rise due to higher shipping costs.

Energy prices for June 2008 were up 6.6%, fueled by a 10.1% increase in gasoline. All throughout the month of June pump prices climbed on a daily basis sending shockwaves through the auto industry and dropping consumer confidence.

Federal Reserve Bank Chairman Ben Bernanke weighed in on the news by offering a lengthy report to the US Congress in conjunction with the Fed’s semi-annual monetary policy report. Highlights of his speech included the following statement:

“The U.S. economy and financial system have confronted some significant challenges thus far in 2008. The contraction in housing activity that began in 2006 and the associated deterioration in mortgage markets that became evident last year have led to sizable losses at financial institutions and a sharp tightening in overall credit conditions. The effects of the housing contraction and of the financial headwinds on spending and economic activity have been compounded by rapid increases in the prices of energy and other commodities, which have sapped household purchasing power even as they have boosted inflation. Against this backdrop, economic activity has advanced at a sluggish pace during the first half of this year, while inflation has remained elevated,” said Bernanke.

Though it is within Bernanke’s authority to drop interest rates in a bid to stimulate the economy, the Fed chairman hasn’t indicated that additional decreases are coming. Typically, when inflation creeps up, the Fed responds by raising rates. However, with the housing and consumer lending crunch looming large, Bernanke will likely not increase rates either.

Finally, although the Consumer Price Index (CPI) rose just 0.3% during the same period, annualized it is a 3.6% increase jump, much higher than the Fed’s preferred 1-2% annual increase. The CPI, however, does not include food and energy prices, the two biggest driving points in this lackluster economy.

(Source: CNNMoney.com)


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