Wholesale inflation surges to largest amount in 34 years

The past two days the Fed has taken further steps to prevent a deepening downturn in the economy (see here). These actions have push the dollar lower and therefore help to raise oil prices (and as we learn today other prices are sure to rise even more).

It is the Fed's mandate to be vigilant in the fight of inflation. Stable prices are a must in an orderly economy. The Fed has maintained that core inflation is in check and therefore they've continue to lower interest rates (now to a the lowest point in 2 years) and in addition pump money (see here) into the market to both prevent a recession (or worst) and to jump start the economy.

Now with the signs of inflation so blaring, the Fed will have to tread much more carefully in their next actions. Further cutting of interest rates or injecting billions of dollars of liquidity into the system my be the trigger to spark a vicious spiral of inflation. With housing down in the dumps, a recession PLUS inflation would be a nightmare economic scenario.

Harry



By MARTIN CRUTSINGER, AP Economics Writer 2 hours, 54 minutes ago
WASHINGTON - A record jump in gasoline prices pushed wholesale inflation up by the largest amount in 34 years. Still, shoppers stormed the malls in November, giving retail sales their biggest gain in six months.

The Labor Department said Thursday that wholesale prices soared by 3.2 percent last month, propelled by a record 34.8 percent rise in gasoline costs.

Even outside energy, inflation pressures emerged. Core inflation, which excludes energy and food, posted a 0.4 percent rise in November, double what had been expected.

Meanwhile, the Commerce Department reported that retail sales jumped by 1.2 percent last month, double the gain economists had expected. It was the biggest increase in six months and followed a much weaker 0.2 percent rise in retail sales in October.

The big rise in inflation demonstrated the pressures facing the Federal Reserve, which is trying to combat a sharp slowdown in economic growth while at the same time making sure that inflation does not get out of hand.

Source Here.