Thursday, 24 February 2005

No acceleration in inflation

After the surprise 0.3 percent rise in January US producer prices announced last week, yesterday's announcement by the Labor Department that consumer prices rose 0.1 percent in January on a seasonally-adjusted basis should lay to rest fears of an acceleration in inflation, at least for now. Excluding food and energy, prices rose 0.2 percent in January, the same as in each of the preceding three months.

In another report from the Labor Department, real average weekly earnings was shown to have fallen by 0.2 percent from December 2004 to January 2005 after seasonal adjustment. A 0.2 percent increase in average hourly earnings was more than offset by a 0.3 percent decline in average weekly hours and a 0.1 percent increase in the consumer price index.

In China, inflation looks like being even less of a worry. On Tuesday, the National Statistics Bureau reported that the consumer price index rose 1.9 percent in January over the same month a year earlier, the smallest increase in 12 months. The consumer price index had risen 2.4 percent year-on-year in December. Inflation had hit a seven-year peak of 5.3 percent in July.

On Monday, the Chinese government had reported that the producer price index had risen 5.8 percent year-on-year in January after reaching a near nine-year peak of 8.4 percent in October.

A similar trend is apparent in Singapore, where the Department of Statistics reported on Monday that the consumer price index had remained unchanged in January from December on a seaonally-adjusted basis.

In view of the prevailing low interest rates, the question to ask: Is the general lack of inflation a sign of adequate capacity or insufficient demand?

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