Wednesday, February 21, 2007
January consumer prices up more than expected
U.S. consumer prices rose more than expected in January despite a dip in energy prices,
as medical costs jumped, according to a Labor Department report on Wednesday that
revived worries of inflation. Consumer prices rose 0.2 percent, while core prices,
which exclude food and energy costs, climbed 0.3 percent. The higher-than-expected
numbers raised concerns the Federal Reserve, which has said it is vigilant against any
rise in inflation, might need to eventually raise interest rates to tamp down price
pressures, rather than lower them, as markets had anticipated. The report led financial
markets to trim bets on interest-rate cuts. U.S. Treasury debt prices fell, U.S. stock
futures added to losses and the dollar rose. "This adds credibility to Fed Chairman Ben
Bernanke in his monetary report to Congress last week that inflation remains a
concern," said Richard DeKaser, chief economist for National City Corp. in Cleveland.
Read the full story at: http://www.reuters.com/article/ousiv/idUSN2019645120070221
Changes in energy and/or medical costs are supply shocks to the economy that eventually
feed into changes in the overall price level. The extent to which the impact of these
shocks is divided between changes in output or the price level depends on whether a
Keynesian fix-price or a classical flex-price world is assumed. The announcement of
higher consumer prices should make the Federal Reserve contemplate a rise in interest
rates, which would counter the inflationary pressure by raising borrowing costs for
firms. In turn, the expectation of higher US rates in the future results in foreign
exchange traders speculating by buying dollars, which increases the value of the dollar
in the present time. This illustrates the important role that expectations play in
determining the economy's magnitudes.
The much acclaimed new interactive learning package LiveEcon can help you understand
the economics behind these important policy events. The impact of supply-side shocks on
the price level of the economy is illustrated in Chapter 7 at principles level and
Chapter 16 at intermediate level. Monetary policy is discussed in detail in chapters 5
and 11 . Chapter 16 also demonstrates certain avenues via which expectations affect
prices. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a
Blogcast via the website.
U.S. consumer prices rose more than expected in January despite a dip in energy prices,
as medical costs jumped, according to a Labor Department report on Wednesday that
revived worries of inflation. Consumer prices rose 0.2 percent, while core prices,
which exclude food and energy costs, climbed 0.3 percent. The higher-than-expected
numbers raised concerns the Federal Reserve, which has said it is vigilant against any
rise in inflation, might need to eventually raise interest rates to tamp down price
pressures, rather than lower them, as markets had anticipated. The report led financial
markets to trim bets on interest-rate cuts. U.S. Treasury debt prices fell, U.S. stock
futures added to losses and the dollar rose. "This adds credibility to Fed Chairman Ben
Bernanke in his monetary report to Congress last week that inflation remains a
concern," said Richard DeKaser, chief economist for National City Corp. in Cleveland.
Read the full story at: http://www.reuters.com/article/ousiv/idUSN2019645120070221
Changes in energy and/or medical costs are supply shocks to the economy that eventually
feed into changes in the overall price level. The extent to which the impact of these
shocks is divided between changes in output or the price level depends on whether a
Keynesian fix-price or a classical flex-price world is assumed. The announcement of
higher consumer prices should make the Federal Reserve contemplate a rise in interest
rates, which would counter the inflationary pressure by raising borrowing costs for
firms. In turn, the expectation of higher US rates in the future results in foreign
exchange traders speculating by buying dollars, which increases the value of the dollar
in the present time. This illustrates the important role that expectations play in
determining the economy's magnitudes.
The much acclaimed new interactive learning package LiveEcon can help you understand
the economics behind these important policy events. The impact of supply-side shocks on
the price level of the economy is illustrated in Chapter 7 at principles level and
Chapter 16 at intermediate level. Monetary policy is discussed in detail in chapters 5
and 11 . Chapter 16 also demonstrates certain avenues via which expectations affect
prices. Find out how to get LiveEcon at www.liveecon.com. Download this blog as a
Blogcast via the website.
# posted by Kostas @ 15:24 
