Inflation hottest in two years

There should be little doubt that with commodity prices at near record highs, the ever weaker greenback, repeated cuts in interest rates and the flooding of the market with dollars that inflation would soon show its unwelcome head.

Now, with inflation clearly on the rise, the chances of further interest rates cuts drops. Therefore, the odds of a recession increase. The Federal Reserve is a jam. Reducing rates, printing money will lead to even higher inflation and if they decide to sit on their hands...recession.

It's time to look at your financial situation and protect yourself from either scenario. I will be posting financial strategies to consider in times such a these.

Harry

Inflation hottest in two years

By Mark Felsenthal 15 minutes ago

WASHINGTON (Reuters) - Consumer prices rose the most in more than two years in November as energy costs surged and a host of other prices marched higher, damping prospects of further interest-rate cuts from the Federal Reserve.

The Labor Department said on Friday that the consumer price index jumped 0.8 percent in November, the biggest gain since September 2005, as energy costs leaped 5.7 percent.

Even stripping out fast-rising food and energy prices, the so-called core CPI rose a relatively steep 0.3 percent, the largest increase since January and ahead of the 0.2 percent rise expected on Wall Street.

"It puts the Fed in a little bit of a bind and people have to question how aggressive the Fed can be in cutting rates if inflation is rearing its ugly head," said Firas Askari, head currency trader at BMO Capital Markets in Toronto.

U.S. stock and government bond prices fell and the value of the dollar hit a seven-week high as traders saw the data suggesting slimmer chances of further rate cuts from the Fed, which has lowered borrowing costs by a percentage point over the past three months. At mid-day, the Dow Jones industrial average (.DJI) was off about 80 points.

"All of these dovish, weak-money individuals out there screaming for rate cuts really need a bucket of cold water in the face because if the Fed goes down that path we may have a bubble in the CPI," said Michael Darda, chief economist at MKM Partners in Greenwich, Connecticut.

GASOLINE ON THE FIRE

Gasoline prices rose 9.3 percent last month, the steepest climb in half a year. Over the past 12 months, gasoline costs are up 37.1 percent, the biggest one-year gain since September 2005.

However, the increase in consumer prices was broadly based.

Apparel costs rose 0.8 percent, medical care prices increased 0.4 percent and owners' equivalent rent -- a gauge of the cost of home ownership that accounts for nearly one-quarter of the overall CPI -- gained 0.3 percent.

The report on consumer prices followed producer price data on Thursday that showed an unexpectedly steep 3.2 percent climb, the biggest increase in 34 years.

Inflation in the 13-nation euro zone was also on the rise last month, with prices up 3.1 percent year-on-year, the steepest gain in six and a half years and a reminder that the Fed is not the only central bank struggling to tamp down inflation at a time growth is threatening to falter.

At the same time, policy-makers expressed concern that high energy and commodity prices could fuel broader inflation.

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