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Inflation rears its ugly head

Tess Vigeland Jul 19, 2006

TEXT OF STORY

CHERYL GLASER: Earlier this year, inflation seemed mostly limited to the gas pump, but now higher are prices are showing up in other places.

The Labor Department says when you take out food and energy costs, the core consumer price index climbed three-tenths of a percent in June. And over the last year, the core inflation rate has jumped 3.6 percent.

Economist Hugh Johnson of Johnson Illington:

HUGH JOHNSON:“It’s really showing up in a lot of places, certainly medical costs which have been going up forever and ever it seems. You see it also in rents, rents are starting to rise. You’re seeing it in tuition costs. Those of course reflect higher energy costs to institutions which are being passed along to consumers.”

And if that’s not bad enough, new home construction dropped 5.3 percent last month. The biggest slowdowns came in what had been the hottest markets, namely the Northeast and the West.

Put it all together and Hugh Johnson sees an economy that’s slowing while inflation’s on the rise. And that, he says, puts the Federal Reserve in a pickle.

JOHNSON:“If they do something about inflation, they raise interest rates to try to slow the economy to try to make it more difficult for companies to raise prices, it really aggravates the slowdown in the economy. So you’ve got kind of a pretty bad or difficult combination.”

We’ll get an update from the Fed Chairman himself starting in just a few minutes.

Ben Bernanke is scheduled to give the Senate Banking Committee his take on the economy.

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