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Strategies & Market Trends : Recession Investing, Business,& Politics,
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To: richardred who wrote (231)1/16/2008 11:35:32 AM
From: richardred  Read Replies (1) of 247
 
Stagflation Nation
by Portfolio Staff Jan 16 2008
Inflation rose again in December, but growth remains a bigger concern.

The Consumer Price Index rose 0.3 percent during the last month of the year, which was a slower pace than November's 0.8 percent jump. Excluding food and energy, the core C.P.I. rose 0.2 percent. The data matched economists' forecasts.

For the year, inflation was up 4.1 percent, thanks to rising costs in the food and energy sectors. It rose at a more modest pace of 2.4 percent after stripping out those items.

Although Federal Reserve chairman Ben Bernanke has expressed concern about rising inflation, his recent comments suggest that the threat of recession is of greater concern now. His remarks have made it seem almost certain that the Fed will cut interest rates again when it meets later this month. Last week, Bernanke said that he was prepared to take "substantive" action to stave off a slowing economy.

"With the sluggish growth outlook and rising risk of recession, inflation concerns have receded," Zach Pandl, an economist at Lehman Brothers, told Bloomberg News. "The Fed is clearly focusing on growth at this point."

Many economists believe that the economy is already in a recession. Today's data would suggest that it is entering a period of stagflation, which is when the economy slows while inflation rises. In December, former Federal Reserve chairman Alan Greenspan said that the economy was showing early signs of stagflation.

The core growth of 2.4 percent is not far outside the Fed's comfort zone for inflation, which is between 1.5 percent and 2 percent.

portfolio.com
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