Inflation keeps climbing as food and energy prices rise
The Labor Department says consumer prices rose in September, but not as quickly as in August. Food and energy prices pushed the overall Consumer Price Index (CPI) up by about a third of one percent. Remove those volatile elements of the CPI and the “core” inflation rate was less than half that. So right now at the core level it doesn’t appear that inflation is rising into a problem for the US economy. This is important for a number of reasons, not least of which is that the Federal Reserve makes many of its monetary policy decisions based on the likelihood of rising or falling core inflation.
We talked to Karen Shaw Petrou, economist at Federal Financial Analytics in Washington, DC. She says the increase in food and energy prices is part of the ongoing story of adjustments in commodity markets. China and other emerging nations are still growing fast, and therefore increasing their use of all sorts of raw materials from food crops to metals and petroleum. It’s simply supply and demand; the greater the demand, the higher the price.
Shaw Petrou says she understands why the Federal Reserve concentrates on core inflation. Those volatile food and energy prices can whipsaw back and forth from month to month and skew the inflation picture. But she points out that Americans buy groceries, fill their gas tanks and heat their homes, so the rising price of energy and food has real implications for the economy; it makes us feel poorer, which makes us think twice about spending, and in some cases stops us spending at all.
Many economists say a little inflation would be good for the U-S economy, especially when it comes to lowering the debt burden of the US government: Inflation erodes the real value of debt. Shaw Petrou thinks that’s like saying in the winter that one needs more weight to stay warm. She says promoting inflation would be a desperate move. She remembers the 1970’s when policymakers wanted a little inflation but wound up with stagflation: uncontrolled rising prices causing economic malaise.
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