Wednesday, 19 December 2007

Stagflation worries as US housing stays weak

Stagflation appears to be a growing concern nowadays.

The US housing market remains in the doldrums.

Monday saw a report showing that the NAHB/Wells Fargo Housing Market Index stayed at 19 this month, its lowest reading since the series began in January 1985.

Yesterday brought news that single-family housing starts and building permits hit 16-year lows after the former fell 5.4 percent in November and the latter fell 5.6 percent. Total starts fell 3.7 percent in November while total building permits fell 1.5 percent.

The weakening US economy hasn't brought any respite on inflation. On Friday, the Labor Department had reported that consumer prices rose 0.8 percent in November. Energy prices drove the increase but even core prices which exclude food and energy rose 0.3 percent.

Europe is facing similar problems with slower growth and higher inflation.

The Royal Bank of Scotland Group Plc's preliminary estimate of its composite index for the euro zone fell to 53.3 in December from 54.1 in November. The services index dropped to 53.2 this month, the lowest since June 2005, from 54.1 in November, while the manufacturing index slipped to 52.5 from 52.8.

This followed a report on Friday that the inflation rate in the euro area had risen to 3.1 percent in November from 2.6 percent in October.

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