Thursday 21 February 2008

Housing slump, inflation hump

Yesterday's reports did not show much change in the direction of the US economy in January. Inflation remains high, housing remains weak. Bloomberg reports:

The two-year housing slump pushing the U.S. economy toward a recession hasn't alleviated inflation pressures, reports today showed.

Consumer prices rose 0.4 percent from December, with costs excluding food and energy climbing 0.3 percent, the most since June 2006, the Labor Department said. Builders started work on 1.012 million homes at an annual rate in January, close to a 16- year low, the Commerce Department reported in Washington...

Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate, the lowest level since November 1991, today's Commerce report showed.

The Federal Reserve has recently appeared more concerned with the weak growth rather than with inflation, expecting the latter to moderate eventually.

Fed policy makers last month judged that low interest rates "were appropriate for a time," according to minutes of the Jan. 9 and 21 conference calls and Jan. 29-30 meeting reported today. And, while some officials considered that a reversal of the rate cuts may be needed once the economy stabilizes, "members agreed that inflation was likely to moderate in coming quarters."

This is despite the fact that Federal Reserve forecasts were revised to show both lower growth and higher inflation.

The Fed also lowered its growth forecast and boosted its expectations for the pace of increase in consumer prices. It now expects the economy to expand 1.3 percent to 2 percent in the fourth quarter from the same period a year before, compared with 1.8 percent to 2.5 percent projected in October. Consumer prices will rise 2.1 percent to 2.4 percent compared with 1.8 percent to 2.1 percent.

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