Category Archives: Inflation

Producer prices rise 0.8% in January, higher than expected

Producer prices rose 0.8% in January, reversing a five-month trend due to increased costs in energy, according to a Labor Department report released Thursday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, topped forecasts that projected a climb from 0.3% and 0.4%. Many economists tend to think the price increases are temporary.

"It is doubtful that the price increases will be able to stick given the weakening economy and rising unemployment," said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who projected wholesale prices would rise 0.9 percent. While "inflation hasn’t collapsed yet, the big concern still is that inflation will fall too much," he said.

Some Federal Open Market Committee (FOMC) members — who set federal fund interest rates — agree. Continue reading Producer prices rise 0.8% in January, higher than expected

Long-term inflation target of 1.7% to 2% set by Fed

The U.S. economy has weakened further and a gradual recovery in economic activity isn’t expected until later this year, Fed policy makers agreed, according to minutes released Wednesday and taken during the closed-door Federal Open Market Committee (FOMC) meeting Jan. 27-28.

The committee also noted their outlook had significant "downside risks," and provided a set of informal long-term economic projections, including that of inflation at 1.7% to 2%. After the meeting, the FOMC held the federal funds rate to a range of between 0 to 0.25%, as it first set in December, and concluded low interest rate levels would need to be kept for some time.

The released minutes make it clearer, however, how some members see the potential for excessive disinflation in 2009, or a deflation risk as St. Louis Fed’s Bullard addressed in a speech Tuesday. Deflation is a persistent decrease in general prices, or the opposite of inflation. Continue reading Long-term inflation target of 1.7% to 2% set by Fed

Deflation a key risk in 2009, argues St. Louis Fed President James Bullard

Further disinflation and a possibly "deflationary trap" is a key "near-term risk" for 2009, said James Bullard, president of the St. Louis Federal Reserve Bank, on Tuesday during a speech in New York. Bullard warned,

"Expectations of deflation for the next five years may feed into real interest rates, driving real rates higher just at the time monetary policy would like to move them lower."

Deflation is a persistent decrease in general prices, or the opposite of inflation. Falling prices may seem like good news for consumers, but only to a certain point. If prices mark sustained deflationary levels that strike below the cost to produce goods and services, further economic turmoil can ensue with production cuts, payroll reductions and deepening unemployment. Deflation can intensify debt by making it more expensive, cripple equity and widen home foreclosures.

Bullard addressed the New York Association For Business Economics where he said the recession would likely continue at least to the first half of 2009, and that there is a risk for sustained disinflation and a possible deflationary cycle similar to what the Japanese experienced after 1990. Continue reading Deflation a key risk in 2009, argues St. Louis Fed President James Bullard

US inflation set to rise to 200%?

Inflation has steadily declined for the last several months as energy prices have plunged, helping to curtail consumer costs. The inflation trend, however, could be heading the other way according to some economists.

Their worry is that current policy and massive government spending from the $800+ billion stimulus package will eventually lead to staggering inflation.

But 200% inflation? Marc Faber, author of the Gloom, Doom & Boom report, was asked that very question by CNBC’s "Asia Squawk Box." Faber’s response: Continue reading US inflation set to rise to 200%?

2008 inflation rate at 0.1%, slowest gain in 54 years for consumer prices

The annual rate of U.S. inflation plunged to 0.1% in 2008, with consumer prices driven down by falling energy prices. The cost of living dropped for Americans as prices dipped for the third straight month, and showed the slowest 12-month gain since 1954, the Labor Department reported Friday.

The Consumer Price Index (CPI), the most closely watched gauge for inflation, fell by 0.7% in December after dropping 1.7% in November. Economists had expected the number to come in at 0.8%.

"Overall inflation has already declined significantly and appears likely to moderate further," Fed Chairman Ben S. Bernanke said in a Jan. 13 speech in London that was reported on Bloomberg.com.

"At this point, with global economic activity weak and commodity prices at low levels, we see little risk of inflation in the near term."

Plummeting energy prices was the headliner again. The energy index fell 8.3% and led in the CPI’s decline by accounting for almost 90 percent of the decrease in the all items index. Continue reading 2008 inflation rate at 0.1%, slowest gain in 54 years for consumer prices

Inflation rates and CPI data updated for January 2009

The US Inflation Calculator is updated with the newest data provided by the Bureau of Labor Statistics (BLS) on Friday, January 16.

The annual rate of inflation in December crawled to just 0.1%, according to the government’s report. The declining trend began back in August when the rate was 5.4%. September followed with 4.9%, October at 3.7% and November at 1.1%.

The Consumer Price Index (CPI) declined 0.7% in December from the prior month. November consumer prices fell a record 1.7%.

In addition to the Inflation Calculator tool using the latest figures for calculation, the following pages have been updated: Continue reading Inflation rates and CPI data updated for January 2009

Producer prices fall 1.9% in December, driven by lower energy costs

Producer prices fell for the fifth consecutive month in December, as tumbling energy prices again led the decline, according to a Labor Department report released Thursday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, fell 1.9%.

The December drop was in line with many expectations, yet slightly lower for other economists who forecasted a fall matching November’s 2.2% decline. The index registered its biggest monthly decline ever in October by falling a record 2.8%.

"The recession will continue through most of the year, and in this environment, producer prices can only move downward," Sal Guatieri, an economist at BMO Capital Markets in Toronto, was quoted at Bloomberg.

The energy index fell 9.3 percent in December after plummeting 11.2% in November and 12.8% in October, which set a 22-year record. Crude goods fell 5.3 percent compared to November’s 12.5% decline and October’s 18.6% drop. Continue reading Producer prices fall 1.9% in December, driven by lower energy costs

Fed December minutes paint darker economic picture, lower inflation

Minutes taken during the closed-door Federal Reserve December 15-16 meeting paint a darker than expected picture for the economy, with further contraction and rising unemployment on the horizon.

At the conclusion of its historic meeting, the Federal Open Market Committee (FOMC) slashed rates to a record low of between zero and 0.25%. The minutes, which provide much more detail and are always released several weeks after the official meeting, cite specific expectations reaching into 2009 and 2010. Continue reading Fed December minutes paint darker economic picture, lower inflation

Fed slashes rates to record low, zero to 0.25%

The Federal Reserve aggressively lowered its benchmark federal funds rate to a range of between zero percent and 0.25%, and said it would "employ all available tools to promote the resumption of sustainable economic growth."

Slashing the overnight lending rate by such a degree was an unexpected Fed move. Most everyone had expected a 0.5% cut from its prior 1%. The rate is now at its lowest level since the government started keeping records in 1954.

"It’s a highly unorthodox and creative step," Michael Woolfolk, senior currency strategist, at the Bank of New York-Mellon in New York told Reuters. "We think it’s the best possible move for the U.S. consumer and for the financial market."

The announcement was made by the Federal Open Market Committee (FOMC), who released the following statement: Continue reading Fed slashes rates to record low, zero to 0.25%

Consumer prices fall record 1.7%, inflation drops to 1.1%

Inflation for consumer products plummeted again during November as prices were pushed down again by free-falling energy costs. Consumer prices declined by a record level for the second consecutive month, the Labor Department reported Tuesday. The annual inflation rate is at 1.1% compared to the 3.7% increase in October.

The Consumer Price Index (CPI), the closely watched inflation barometer, fell in November by a seasonally adjusted 1.7% after October’s record 1.0% decline. Economists had expected a sharp drop between 1.3%-1.4%, which would have been a record itself. The latest figure marks the biggest decline since the government started keeping monthly data in 1947.

"This is scary stuff,” Mike Schenk, an economist for Credit Union National Association was quoted on MarketWatch. "We are teetering on the brink of a massive downward spiral. Deflation is a threat."

"I think we’re in a deflationary spiral that will probably go on until sometime next year," Thomas di Galoma, head of U.S. Treasury trading at Jefferies & Co. in New York was quoted at Reuters. "I think it will probably go on through the majority of 2009."

Falling prices is generally good news for consumers, but only to a certain point. Continue reading Consumer prices fall record 1.7%, inflation drops to 1.1%