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Vocapedia > Economy > Inflation, Deflation, Stagflation




Kipper Williams



The Guardian

Thursday November 13 2008    08.37 GMT









deflation        UK / USA





























put Britain on the brink of deflation        UK











































































































































































inflation        UK / USA





























































































































turn negative        UK










food inflation > coffee prices        UK










inflation        UK        2008










inflation        USA        2008-2011

















Consumer Price Index        USA










inflation rate        UK / USA












UK inflation since 1948        UK









high inflation        USA










surge in inflation        UK










soaring inflation        UK










inflationary spike        USA










a spike in inflation








cost of living        USA










surging cost of living








increase        USA










The retail prices index (RPI),

the broadest measure of inflation        UK










The government's

preferred measure of inflation,

the consumer prices index    CPI        UK












Q&A: Inflation and deflation        UK










wholesale inflation








drop        UK






pace of inflation





the specter of inflation





tame inflation data





look tame        USA

















stagflation        UK / USA


Stagflation is a period

when economic growth is stagnant

but when prices rise.


Recession is at least

two quarters

of negative economic growth.


the-spectre-of-stagflation-827745.html - 23 October 2011


















Corpus of news articles


Economy > Inflation, Deflation, Stagflation




Inflation Slowed in August,

Reflecting a Weak Economy


September 15, 2011

The New York Times



The rate of inflation in the United States slowed slightly in August, when a rise in food prices was tempered by easing prices for gasoline and automobiles, according to government statistics released Thursday.

The Labor Department said the Consumer Price Index rose 0.4 percent last month, a slight deceleration compared with the 0.5 percent rise in July. The index, although it reflects just one month of data, is a closely watched indicator that guides analysts in assessing the economy. Other reports released Thursday showed weakness in the jobs market and an uncertain outlook for manufacturing.

“The story is very much the same: that economic growth is slow,” said Kurt J. Rankin, economist for PNC Bank, about the day’s data.

The inflation figures for August reflected the volatility in prices for items such as food and energy. Prices for gasoline moderated, with a 1.9 percent rise in August after a 4.7 percent jump in July. Food prices rose 0.5 percent compared with 0.4 percent in July.

When those components were stripped from the index, the core C.P.I. showed that prices rose in August at the same rate as in July, 0.2 percent. That was in line with analysts’ forecasts in a survey compiled by Bloomberg News.

On a year-over-year basis, the core C.P.I. was up 2 percent in August compared with 1.8 percent in July.

Paul Ballew, a former Federal Reserve economist and now chief economist at Nationwide, said that the August C.P.I. number was consistent with expectations set earlier by such things as automobile prices, which were basically flat in August.

“Those pockets of weakness were in areas already expected and known,” he said.

Of more importance to investors were events in the European debt crisis and speculation as to what Federal Reserve policy makers would say after a meeting next week, Mr. Ballew said. Although the chairman of the Fed, Ben S. Bernanke, has given no sign that there would be fresh stimulus measures, market watchers were weighing the possibility of any measures that would promote the economic recovery in the United States.

With the year-over-year core C.P.I. at 2 percent, it was bumping up against the top limit of the Fed’s unofficial target rate. But the Fed also relies on another closely watched measure of inflation, the price index for personal consumption expenditures, which was up 1.6 percent in the 12 months that ended in July, the latest government data shows.

“It definitely gives him room under the ceiling, if they want to ease policy,” said Kevin Logan, senior economist at HSBC. One such move would be for the Fed to shift bonds in its portfolio to bring down longer-term interest rates. But the central bank cannot raise rates, Mr. Rankin of PNC Bank said, because it would slow economic activity.

In addition, the latest figures show that inflation is set to outpace wage growth, which would be a “significant blow” to potential economic growth because 70 percent of the economy is based on consumer spending, Mr. Rankin said.

“Even those with jobs are not able to put that money back into the economy in a way that would create jobs,” he said. “Now we are getting to the point with this inflation number, even those with jobs are less capable of driving economic activity.”

Steve Blitz, the senior economist for ITG Investment Research, also said that the latest data did not add any impetus to notions that the Fed would respond with policy action at its meeting on Sept. 20-21.

“I think because of the headline number and all of the conservative politics behind it, this certainly does not give Bernanke any cover towards doing anything big,” Mr. Blitz said. “The only thing that is going to give him the cover is what is going on in Europe.”

Mr. Blitz said the C.P.I. data reflected more of a shift in prices rather than inflation, because there was no accompanying rise in wages, and some elements of the data suggest the possibility of future economic activity in specific sectors as capital is directed more efficiently.

For example, rents are a factor pushing the index higher, Mr. Blitz said, but that could be positive for the economy if it continues because it can spur construction in multifamily homes and rental housing.

In addition, a weaker dollar is also pushing up the C.P.I., which means imported goods are more expensive. Domestic producers might see an opening to compete with imported products.

“Here what you have is an interesting mix of price signals that could very well help growth going forward,” Mr. Blitz said.

A weekly report from the Labor Department showed that for the second consecutive week, initial claims for jobless benefits rose, increasing by 11,000 in the week ended Sept. 10 to 428,000. That was up from the previous week’s 417,000, which was revised up from 414,000.

Economists generally take any level over 400,000 as a continued sign of weakness in the labor market.

In addition, the Federal Reserve reported that industrial production increased 0.2 percent in August after having advanced 0.9 percent in July.

Total industrial production for August was 3.4 percent above its level of a year ago, the Fed said.

Inflation Slowed in August, Reflecting a Weak Economy,






Americans to Fed:

prices are too high


Thu Apr 7, 2011
6:38pm EDT
By Daniel Trotta


NEW YORK (Reuters) - On the streets of America, the debate over inflation is over. Prices are too high and rising too fast, many people say.

"The government says inflation is low, but that's not what I'm seeing at the grocery story," Jorge Alberto, an 88-year-old retiree in Miami, said walking out of a supermarket. "My pension is being put to the test."

Policy-makers at the U.S. Federal Reserve largely agree that promoting economic growth is still more urgent that constraining a nascent pick-up in consumer prices.

They look beyond the volatile fuel and food prices that have pushed up inflation and focus instead on data showing little if any upward rise in wages, something they would see as the seed of a sustained and broad-based rise in prices.

"I don't think the Federal Reserve has a clue about us little people," said J. McKeever, an instructor at the Montessori Institute of Milwaukee.

"I am very frugal, so I watch what I spend. And what I have noticed in recent months is that I have less money before than I used to, while making the same amount of money and having to pay for health care," she said.

Across the country, Americans tell of a disconnect between the real economy they live in and the macroeconomic picture as described by economic indicators.

Consumer prices rose 0.5 percent in February from January, and 2.1 percent over the previous year but the rates were half that when stripping out food and energy.

"There are no salary increases and you know you have the pressure at work to cut, but on a personal level everything else keeps going up. You never seem to be able to catch up," said Paty Peterson, 50, of suburban San Francisco.

Policy-makers at the Fed must weigh how much the perception of inflation might trigger actual price increases. The worry would be if businesses pushed up prices to cover their rising costs and workers in turn demanded higher wages to cover theirs -- which could spark a self-feeding cycle.

Consumers' inflation expectations rose briskly in March, according to the Thomson Reuters-University of Michigan survey.

U.S. households are facing higher prices for staple products such as Tide laundry detergent and Hershey chocolate bars as cocoa, sugar, oil, wheat, corn and other commodity prices climb.

Major consumer products makers have said in recent weeks that they will be raising prices including Procter & Gamble Co (PG.N: Quote, Profile, Research, Stock Buzz), which said it would raise laundry detergent prices 4.5 percent in June. Kimberly-Clark Corp (KMB.N: Quote, Profile, Research, Stock Buzz) is raising prices on diapers, baby wipes and toilet paper as much as 7 percent.

"My grocery bill is up 30 percent over last year," said Cheryl Holbrook, 47, who educates her seven children at home in Mobile, Alabama. "We have to pinch every little penny and make it squeak."

The Fed's hawks, who stress the risks of inflation, have stepped up their argument that it may be time to wind down the central bank's $2.3 trillion securities-buying program to stimulate the economy. So far, they have been out-argued by those who see recovery from the Great Recession as fragile and still in need of a boost.

The European Central Bank, by contrast, on Thursday raised interest rates for the first time since 2008 to contain rising prices.

If underlying prices rise, or an inflationary psychology starts to take hold, the Fed could change course.

A recent Reuters poll found long-term expectations for the food and fuel prices that have pushed inflation higher in recent month are on the rise.

Consumers meanwhile complain that food and gasoline consume too much of their income, forcing difficult decisions to stay within budgets.

Eileen Reilly, 72, a retired resident of the Chicago suburb of Geneva, said higher gasoline and food prices have forced her to drive less, buy a cheaper food for her dog Lucky, and stop taking pills for a liver condition she declined to identify.

"My doctor said I could die if I don't take them," Reilly said, rolling her eyes. "I told him that I'm 72 and I'll be dead soon as it is. Besides, it was either the pills or the car and the dog. And I need the car and I love the dog."


(Reporting by Kevin Gray in Miami,

Mark Felsenthal in Washington,

Verna Gates in Birmingham, Alabama,

Nick Carey in Chicago, Brad Dorfman in Chicago,

John Rondy in Waukesha, Wisconsin,

Peter Henderson in San Francisco)

(Writing by Daniel Trotta)

Americans to Fed: prices are too high, R, 7.4.2011,
us-usa-economy-inflation-idUSTRE7367BZ20110407 - broken link






Economic View

How a Little Inflation Could Help a Lot


August 2, 2009
The New York Times


BECAUSE fiscal stimulus has not yet been a striking success, perhaps it’s time to consider new monetary remedies for the economy.

That is the argument of Prof. Scott Sumner, an economist at Bentley College in Waltham, Mass., who is little known outside academic circles but whose views have been spreading, thanks to his blog, TheMoneyIllusion (blogsandwikis.bentley.edu/themoneyillusion/).

Professor Sumner proposes that the Federal Reserve make a firm commitment to raising expectations of price inflation to 2 to 3 percent annually.

In his view, policy makers in Washington are doing too much with fiscal policy — overspending and running excess deficits — and not doing enough on the monetary side.

While his views are controversial, they are based on some assumptions that are not. It is commonly agreed among economists that deflation brings layoffs and sluggish investment. Yet, energy price shocks aside, we have been seeing downward pressure on prices. Futures markets and Treasury Inflation-Protected Securities — more precisely, the spread between the yield on TIPS and traditional securities — suggest current expectations that inflation will remain well under 1 percent. Economists generally agree that this is not ideal, and Professor Sumner urges the Fed to try especially hard to overcome the deflationary pressures.

But how would the Fed accomplish this feat? This is where his recommendations get interesting.

The Fed has already taken some unconventional monetary measures to stimulate the economy, but they haven’t been entirely effective. Professor Sumner says the central bank needs to take a different approach: it should make a credible commitment to spurring and maintaining a higher level of inflation, promising to use newly created money to buy many kinds of financial assets if necessary. And it should even pay negative interest on bank reserves, as the Swedish central bank has started to do. In essence, negative interest rates are a penalty placed on banks that sit on their money instead of lending it.

Much to the chagrin of Professor Sumner, the Fed has been practicing the opposite policy recently, by paying positive interest on bank reserves — essentially, inducing banks to hoard money.

The Fed’s balance sheet need not swell to accomplish these aims. Once people believe that inflation is coming, they will be willing to spend more money.

In other words, if the Fed announces a sufficient willingness to undergo extreme measures to create price inflation, it may not actually have to do so. Professor Sumner’s views differ from the monetarism of Milton Friedman by emphasizing expectations rather than any particular measure of the money supply.

The Keynesian critique of this remedy is that printing more money won’t stimulate the economy because uncertainty has put us in a “liquidity trap,” which means that the new money will be hoarded rather than spent. Professor Sumner responds that inflating the currency is one step that just about every government or central bank can take. Even if success is not guaranteed, it seems that we ought to be trying harder.

Arguably, we can live with 2 or 3 percent inflation, especially if it stems the drop in employment. Consistently, Professor Sumner argues that the Fed should have been more aggressive with monetary policy in the summer of 2008, before the economy started its downward spiral. Somewhat tongue in cheek, he once wrote on his blog: “Like a broken clock the monetary cranks are right twice a century; 1933, and today.”

It may all sound too simple to be true, but has the status quo been so good as to silence all doubts? Many advocates expected that the $775 billion allocation to fiscal stimulus would be followed rapidly by generous funding for health care and other reforms. But at the moment, the American public, rightly or wrongly, is blanching at higher government spending and higher taxes. In contrast, a Fed stance in favor of mild price inflation need not require higher taxes or larger budget deficits.

While these arguments have not won over the economics profession, neither have they been refuted. Economists like Paul Krugman have suggested that a public Fed policy favoring 2 or 3 percent price inflation isn’t politically realistic in today’s environment. Still, mild inflation might still be a better shot than hoping for a fiscal stimulus that is big enough, rapid enough and ambitious enough to work.

IF there is a flaw in Professor Sumner’s argument, it is that aggregate demand doesn’t always drive business recovery. Circa 2007, for reasons of their own making, various sectors of the economy were in a vulnerable position. These included real estate, the automobile industry and retail sales. Higher price inflation would not have solved their problems, which stemmed from basically flawed business models that depended on rampant credit. Still, a different Fed stance might have limited the secondary fallout from the financial crisis.

Of course, there’s a risk that inflation could get out of hand and rise above 2 or 3 percent. That said, the Fed has battled inflation successfully in the past, and could do so again if necessary.

Professor Sumner has been working for 20 years on what he hopes will be a definitive economic history of the Great Depression. In this manuscript, tentatively titled “The Midas Curse: Gold, Wages, and the Great Depression,” he argues that Sweden in the 1930s made a credible commitment to expansionary monetary policy and had a milder depression as a result.

Professor Sumner’s proposals may not be public policy now. But if there is one thing economists should know, it is that we should not underestimate the power of an idea.


Tyler Cowen is a professor of economics

at George Mason University.

How a Little Inflation Could Help a Lot, NYT, 1.8.2009,






The spectre of 'stagflation'

It was the curse of the 1970s
– rampant inflation and stagnant economic growth.
Now there are fears that Britain
could once again be haunted
by the spectre of 'stagflation'


Wednesday, 14 May 2008
The Independent
By Sean O'Grady, Economics Editor

A combination of stagnant output and high inflation not seen for decades is set to haunt policy makers for months if not years to come.

Even with the credit crunch, the housing market at its lowest ebb in 30 years, high street sales at their most miserable in half a decade, and industry reporting a collapse in orders, prices are still rising – and at an ever-faster rate. The Chancellor, Alistair Darling, did not admit as much in his mini-Budget yesterday, but his injection of £2.7bn of spending power into the economy may be designed to prevent a catastrophic collapse in demand as Bank of England policy makers find their room for manoeuvre to reduce interest rates constrained by record inflation.

In April, we discovered yesterday, consumer price inflation hit 3 per cent, well above the official target rate of 2 per cent, and a whisker away from the level at which the Governor of the Bank of England, Mervyn King, is obliged to write an open letter to the Chancellor of the Exchequer explaining the failure of policy.

The jump, from 2.5 per cent last month, is the most dramatic since 2002, and the rise in the cost of living is unusually broadly based. The retail price index, which includes housing costs, rose to 4 per cent, up from 3.8 per cent the previous month. Increases in the sort of basic items that families have to buy were the highest. Food is 7.2 per cent up on a year ago, with analysts expecting 10 per cent inflation in a few months. And it's the essentials that are up the most – bread by 13 per cent, butter by 32. 2 per cent and eggs by a third. The increase in food prices is the fastest since 1990.

The twin effects of the credit crunch and the commodities crunch have sucked purchasing power out of the economy while increasing the cost of housing, food, energy and almost everything else. Global food prices are up 40 per cent in a year and oil is up by 70 per cent – a barrel costs four times what it did in 2004. With the American property market still in freefall and the sub-prime crisis as acute as ever, little seems to ease the credit crunch. Propelled ever higher by an insatiable demand from China and other fast-growing emerging economies there also seems little end in sight to the rise in commodity prices.

The 15 per cent decline in the value of sterling – as steep as when the pound was forced out of the ERM on "Black Wednesday" in 1992 – has exacerbated inflationary pressures. The fall is hitting living standards, especially for pensioners and the poorest.

Electricity bills are 8.3 per cent higher and gas up 3.7 per cent. Heating oil is a staggering 59.4 per cent more expensive than this time last year. Yesterday British Gas became the latest energy supplier to threaten yet more price rises by the end of the year, having raised its tariffs by 15 per cent in January. Average household gas bills could top £1,000 in 2008. The average price of petrol rose by 1.9p per litre between March and April this year, with diesel up by 4.2p a litre.

During the past few years or so, the Bank of England's Monetary Policy Committee (MPC) would have a simple remedy for such an increase in prices – a rise in interest rates. During the "Great Stability", a decade of generally low inflation, low interest rates and rapidly rising living standards, policy makers could expect to influence the economy relatively easily. Now their task is more difficult, as they are pulled between the need to fight inflation and avoid a slump.

The Bank of England recognised the danger of inflation this time last year, and began a programme of interest-rate rises to rein it in. Then came the credit crunch, the risk of recession, and the plan was abandoned. The fear was of a slump, one that would damage the economy so badly that, if anything, the longer-term danger would be of inflation undershooting the target as demand and confidence collapsed. The need to prevent this happening while tolerating a "temporary spike" in inflation has been the Bank of England's rationale for a series of interest-rate cuts since last autumn. However, after a quarter percentage point cut to 5 per cent in April, the Bank has chosen to keep rates on hold this month. It could mark the end of that plan, and a return to a keener watch on rising prices.

Tellingly, the MPC knew how bad the new inflation figures would be when members met last Thursday. Economists now believe that a rate cut that had been predicted for June will also be cancelled. The Inflation Report, due from the Bank today, will tell us more about how they see the likely "path" of rates over the next year or so.

Matters are made more complicated because the Bank's "policy rate" is almost irrelevant when market interest rates remain stubbornly high, thanks to the credit crunch. Almost as fast as the Bank of England has been reducing rates the commercial lenders have been raising them and putting up their fees for arranging a mortgage, cutting the flow of funds into the housing market by a half.

Attempts to "inject liquidity" into the banks by swapping government securities for unwanted mortgage-backed securities have been only partially successful. At least for now, the Bank seems more concerned about inflation. Even so, there is little chance of the MPC raising rates to address this danger. Mr King said as recently as two weeks ago that "it doesn't make sense to raise interest rates at this stage to induce a recession to keep inflation below 3 per cent".

Yet a recession may be just what Mr King gets – no matter what he and his colleagues do. The British economy is growing at its slowest rate for three years, with expansion in the first quarter of this year just 0.4 per cent, compared with a rise of 0.6 per cent in the previous quarter. Bank officials have admitted that its forecast for growth is consistent with the possibility of a brief, shallow recession, that is negative growth. Few now expect the Government's official estimate of growth in a 1.75 per cent to 2.25 per cent range to be achieved. Most independent observers put the growth rate much lower, some as low as 1 per cent this year. Even the bottom range of the Treasury's own projection would be consistent with a quarter or two of virtually no growth, as close to a recession as makes no difference. Some sectors are already in, or close to, recession.

Most ominously, this week saw a sharp rise in the number of "forced sales", consistent with last week's poor news on repossessions. The accidental leak by the Housing minister, Caroline Flint, of an expectation of a 5 to 10 per cent decline in house prices looks optimistic by some standards.

This time next year, on the conventional four-year cycle, the country should be in the middle of a general election campaign. Gordon Brown may find himself haunted not only by the spectre of stagflation, but by the infinitely more terrifying spectre of humiliation and defeat.

    The spectre of 'stagflation', I, 14.5.2008,






Consumer Price Drop

Prompts Fear of Deflation


November 20, 2008
The New York Times


In another sign that the struggling economy continues to slow, consumer prices tumbled by a record amount in October, carried lower by skidding energy and transportation prices, raising the specter of deflation.

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October compared with prices in the previous month, the Labor Department reported Wednesday morning.

It was the steepest single-month drop in the 61-year history of the pricing survey and raised concerns about deflation as the economy contracts and demand for goods and services plunge. Another report released Wednesday indicated that new home construction continued to fall. “This month it’s more than slowing, it’s outright contraction,” said James O’Sullivan, United States economist at UBS. “And yes, if you extrapolate that, it’s deflation.”

A continued decline in prices could worsen the economic slowdown by making it harder to pay off debts and would negate the impact of interest-rate cuts by the Federal Reserve.

Even excluding volatile food and energy prices, prices dropped 0.1 percent in October, the first such decline in more than two decades. Mr. O’Sullivan said that he expected core prices, which are up 2.2 percent this year to continue to fall back, but he does not expect them to slip into negative territory..

“You’re going to see huge declines in a month’s time in the November reports,” Mr. O’Sullivan said. “That’s the biggest part of the weakness.”

Energy prices led the decline in October, falling 8.6 percent as the price of gasoline continued its steady slide from highs of more than $4 a gallon. The costs of transportation fell 5.4 percent while clothing prices fell 1 percent.

“It’s funny that just a few months ago everyone was wringing their hands over inflation,” said Nariman Behravesh, chief economist at Global Insight. “It’s gone. It’s over.”

“The dominant and common factor is the plunge in gasoline prices, which drove the bulk of the weakness,” Mr. Sullivan said.

In a speech Wednesday at a Washington conference, the vice chairman of the Federal Reserve, Donald L. Kohn, said the risk of deflation remained slight but was increasing. “Whatever I thought that risk was, four or five months ago, I think it is bigger now even if it is still small,” Mr. Kohn said. The Fed, he added, needs to be aggressive, if necessary, to prevent a drop in prices.

But economists said the Federal Reserve had limited its options after repeatedly cutting interest rates in recent months. The target rate for the federal funds rate is now 1 percent after a cut of half a percentage point in October. Still, many are expecting another cut at the next meeting in December.

A report on the beleaguered real estate market showed that housing starts fell 4.5 percent in October, to a seasonally adjusted 791,000. Housing starts last month were 38 percent lower than their October 2007 levels.

Shares on Wall Street were sharply lower Wednesday morning following the reports

Economists said the tumbling consumer prices offered more evidence that companies ranging from boutiques to airlines to car dealerships were beginning to offer deep discounts to compete for a shrinking pool of disposable cash. Americans have tightened their spending as job losses mounted and easy credit dried up, and retailers are bracing for a punishing holiday shopping season.

“We’re looking at a pretty deep recession now,” Mr. Behravesh said. “ All of a sudden, any pricing power that companies might have had is gone. You’re going to see discounting like crazy going on. All kinds of sales. You’re going to see all kinds of prices being slashed.”

With consumers pulling back, many analysts are expecting a difficult Christmas shopping season. Retail sales, for example, were down 2.8 percent in October from September, and 4.1 percent from October 2007 as consumers pared their spending.

The price of food and beverages edged up in October, and was still 6.1 percent higher than the same period last year. Alcohol, cereal, meat, fish and desserts were all more expensive in October while the price of produce and dairy products dipped slightly.

And while energy prices fell sharply in October, they were still an unadjusted 11.7 percent higher than a year ago, thanks to a long run-up in oil and energy costs. The decline in consumer prices was just the latest symptom of an ailing economy. On Tuesday, the government reported that wholesale prices dropped a record 2.8 percent last month as commodities prices plummeted on slumping worldwide demand. Crude oil prices, which peaked near $150 a barrel this summer, are now hovering at $55 a barrel, and the prices for gold, silver and other metals have collapsed.

    Consumer Price Drop Prompts Fear of Deflation, NYT, 20.11.2008,






News Analysis

That ’70s Look: Stagflation


February 21, 2008

The New York Times



Lately, many people are hearing an echo — faintly perhaps but distinctly audible — of the stagflation of the 1970s.

Even as economic growth sags, oil and gasoline prices are surging to new heights. Gold is on the rise, along with the prices of such basic commodities as wheat and steel. And on Wednesday, with the latest government report on consumer prices, there are signs that overall inflation, after years of only modest increases, may be breaking out of its box.

For the Federal Reserve and its chairman, Ben S. Bernanke, all this could not come at a worse time. With the credit markets in disarray from the collapse of the housing bubble, Mr. Bernanke is cutting rates in a headlong rush to blunt the risks of recession.

But in putting its emphasis above all on reviving growth, America’s central bank, according to some economists and even a few Fed officials, may face a bigger inflation problem down the road.

“They are cutting rates with a bill to be paid later," said John Ryding, chief United States economist at Bear Stearns. “The question is not, will we get inflation, but how much will it cost to stuff the genie back in the bottle. This has the feel of 1970s stagflation.”

Over the last 12 months, consumer prices are up 4.3 percent on average, according to the Labor Department. The core index of consumer price inflation, which excludes food and oil, was 2.5 percent higher in January than a year earlier, significantly above the Fed’s unofficial comfort zone of a 1 to 2 percent underlying inflation rate. That’s a far cry from the double-digit inflation rates that battered the economy at times in the 1970s, but still worrisome.

Analysts like Mr. Ryding say that by tolerating such price rises and maybe even allowing them to escalate, the Federal Reserve is risking its hard-won credibility as an inflation fighter, which will ultimately require it to push up interest rates higher than otherwise to contain the damage.

Most economists still expect the Fed’s policy-making committee to cut interest rates again when it meets on March 18, engineering its sixth reduction since September. But the fears of a revival of inflation underline the difficult decisions it now faces.

Like the Fed, economists generally remain more concerned about the immediate threat of recession than the more distant fear of higher inflation. Recent data suggests an economy that may be in a downturn or close to it. The consensus view is that the expected slowdown is likely to create enough spare capacity to suck inflationary pressures out of the economy.

Moreover, even if some additional inflation is a side effect of the Fed’s prescription, many economists say, it sure beats the alternative. Once the interest rate cuts have nursed the economy through the next few difficult quarters, they say, the Fed can easily raise rates again to respond to any pickup in inflation.

“They are going to fix the wound now,” said David Durst, chief investment strategist of the Global Wealth Management Group of Morgan Stanley. “They are going to take care of the growth situation and then fight inflation when the economy gets stronger.”

Reinforcing this view, there are few signs that inflation is seeping into the labor market and pushing up wages in anticipation of higher prices to come.

That may be comforting to the Fed, but keeping inflation contained still may not be easy. In recent days some officials at the central bank have gone out of their way to warn that they are not prepared to let down their guard — even if it means that the Fed has to be less aggressive about cutting interest rates.

In a speech this month, Richard W. Fisher, president of the Federal Reserve Bank of Dallas, said “the Fed has to be very careful now to add just the right amount of stimulus to the punch bowl without mixing in the potential to juice up inflation once the effect of the new punch kicks in.”

Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia, echoed that view, saying in a speech that “we cannot be confident that a slow-growing economy in early 2008 will by itself reduce inflation.”

“As we learned from the experience of the 1970s,” Mr. Plosser added, “once the public loses confidence in the Fed’s commitment to price stability, it is very costly to the economy for the Fed to regain that confidence.”

In a telephone interview, Mr. Plosser explained that the Fed seemed to be making progress against inflation in the first half of 2007 but he started to become more worried during the second half.

“Since the summer almost all of the measures of inflation that we look at have begun to accelerate again, and in some cases pretty sharply,” Mr. Plosser said. “Perhaps the inflationary pressures are more broad-based than just energy.”

While Mr. Plosser said he hoped that inflation was about to moderate on its own, “we do have a dual mandate after all — one is price stability and the other is growth.”

“We can’t just throw one out of the window when it is convenient.”

To Bernard Baumohl, managing director of the Economic Outlook Group, such talk is seen on Wall Street as a clever tactic intended to help jawbone inflationary expectations downward while the Fed continues to cut rates for at least a while longer.

“We expect Fed officials will ramp up their rhetoric in speeches and in testimony that they will work diligently to keep inflation expectations under control,” Mr. Baumohl wrote to clients after the latest consumer price figures were released Wednesday. “Mere words, to be sure. But it would be a mistake to construe them as hollow.”

Zach Pandl, an economist at Lehman Brothers, said that the statements so far have been by less important Fed officials and that the Fed’s real views should be measured by its actions, which are to cut rates aggressively with less concern about inflation.

Those actions have led a number of economists to warn that the Fed’s aggressive easing moves, combined with the strong demand for industrial and agricultural commodities from emerging global economic powers like China and India, may be laying the groundwork for a new era of rising inflation.

“The period of falling inflation that we have been in for all the ‘80s and ‘90s and early 2000s has come to an end,” said Michael Darda, chief economist at MKM Partners, a research and trading firm in Greenwich, Conn. “That is over.”

Mr. Darda points to the surge in commodity prices, including food and oil. Long-term rates are rising in the bond market, reflecting the view that both growth and inflation may pick up later this year and into 2009, as well as fears about bad debt.

And, according to Mr. Pandl, a measure of investors’ inflation expectations provided by the difference between the yield on normal Treasury securities and Treasury inflation-protected securities “spiked quite a bit higher” after the Fed cut rates in January even though it “has been trading lower since then.”

Then there is gold, which has historically been a refuge for investors seeking protection from eroding currencies.

Gold “has risen a lot since the Fed began lowering rates,” Mr. Darda said. “That’s an ominous sign. Once we are in 2009 and 2010, we are going to figure out that inflation is far less benign.”

That ’70s Look: Stagflation,










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