James Quinn – “American consumers squeezed by surging inflation”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/07/17/cnusecon117.xml

American consumers squeezed by surging inflation

James Quinn | July 18, 2008

The already struggling US economy took another turn for the worse after it emerged that American consumers are experiencing a period of “intense” inflation after prices soared at the fastest annual rate in 17 years on the back of the rising price of oil and food.

The US consumer price index rose 5pc on a year-on-year basis, its highest rate since May 1991, a rate more than douible the US government’s 1.5pc-2pc target range.

Prices jumped 1.1pc in June, the second highest increase since 1982 – and the highest since 2005 during the aftermath of Hurricane Katrina. Stripping out food and fuel costs, inflation rose by 0.3pc.
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The inflation numbers were compounded by a separate US Labour Department report that showed that salaries are declining. The average weekly earnings of US workers fell 0.9pc in June on an inflation-adjusted basis

The news is the latest blow to the American economy, which has already seen more than 1m homes repossessed as a result of the sub-prime mortgage scandal and unemployment at 5.5pc.
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Federal Reserve chairman Ben Bernanke yesterday acknowledged that US inflation “is too high”, adding that it is likely to go higher when he admitted that “upside risks to the inflation outlook have intensified”.

The head of the US central bank added: “It’s a top priority of the Federal Reserve to run a policy that is going to bring inflation to an acceptable level consistent with price stability.”

Speaking before the House Financial Services Committee during the second day of questions on his semi-annual economic state of the nation report, Mr Bernanke also admitted that there is little the Fed can do about the factors causing growing inflation pressures.

He said the rising price of oil and other commodities was due to “factors out of the control of the Federal Reserve”. “The only silver lining to these high prices is they induce lots of incentives to conserve, incentives to provide alternatives, incentives to find and develop other oil sources,” he added.

In an apparent about-turn, Mr Bernanke said that there are “significant downside risks” to the outlook for growth. His comments were a move away from the Fed’s assessment at the meeting of its FOMC rate-setting committee at the end of last month, when it said that risks to growth had diminished.

Further insight into current thinking was due in the minutes of that meeting, which were being released last night, alongside the so-called “Beige Book” assessment of the regional economic health of the US.

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Published in: on July 19, 2008 at 2:17 PM  Leave a Comment  

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