Inflation jitters as rate quickens
Inflation jitters as rate quickens
Also In The News
|
Italian football is in a state of total bewilderment after the cataclysmic last few weeks. |  |
Wednesday, 14, Jun 2006 04:19
US inflation grew in May, destabilising plunging global markets and heightening concern about future prospects for the world's largest economy.
While consumer prices, hampered by high utility costs, rose by 0.4 per cent, core inflation grew by 0.3 per cent – significantly more than had been forecast by analysts.
With the US currently the world's biggest debtor, owing billions to the emerging markets and looking increasingly vulnerable now that global liquidity is starting to dry up, commentators are predicting that slowing growth and continually rising interest rates show foreboding signs for the economy.
"The message is clearly one of below trend growth," commented Gabriel Stein of Lombard Street Research. "There is weakness in the US and relative strength elsewhere."
He pointed out that efforts by the Federal Reserve to adhere to a safety net of between one and two per cent had failed, for the present "headline rate" of inflation "is well above the comfort zone".
Today's higher than expected inflation results cement expectations that Federal Reserve chairman Ben Bernanke will raise interest rates for the 17th consecutive month on June 29th.
Mr Stein said a further increase above the present rate was "in the bag" but warned that further rises would "overshoot" what is required, by overcompensating for past economic events without considering future economic impact.
"The Fed's first cuts should come in early 2007, rather than when they should come - in late 2006," he said.