March 23, 2005


Fed Boosts Interest Rate, Raises Specter of Inflation (Tom Petruno, March 23, 2005, LA Times)

The Federal Reserve hiked interest rates Tuesday and rattled investors by warning about rising inflation pressures, marking the first time in more than four years that the central bank has openly worried that prices might be climbing too quickly. [...]

Overall, inflation remains far from the double-digit levels of the late 1970s and early 1980s. Yet the Fed — and financial markets — are haunted by memories of that era and how it ravaged the economy and eroded the value of stocks and bonds. That is why the threat of accelerating inflation makes policymakers, and many investors, so nervous.

The consumer price index, the government's main inflation gauge, rose 3.3% in 2004, the biggest jump in four years, as gasoline prices leapt. Without energy and food costs, the so-called core CPI was up a more modest 2.2% for the year, but that still was double the 1.1% core rate of 2003.

The government today is expected to issue its report on the CPI for February.

Producer Prices Up in February: The increase is tempered by a drop in the vehicle sector, helping allay inflation fears spurred by gains in January. (Reuters, March 23, 2005)
[T]he core producer price index, which excludes volatile food and energy costs, rose just 0.1%, matching Wall Street forecasts and soothing inflation fears spurred by a hefty gain of 0.8% in January.

Inflation fear is purely psychological these days, not based on any underlying reality, but psychology matters to and the Fed's only purpose it to fight inflation so it tends to be quite susceptible to the mania.

Posted by Orrin Judd at March 23, 2005 6:07 AM


What was the rate of inflation when Nixon imposed wage and price controls circa 1971?

Posted by: Tom C., Stamford,Ct. at March 23, 2005 9:27 AM


Posted by: oj at March 23, 2005 9:45 AM

It went from 3 to 6% until settling in around 4% Scared the crap out of everyone while over the next 10 years worked it's way toward 12%. As far as renewed inflationary pressures are concerned, one should nver say never.

Posted by: Tom C., Stamford,Ct. at March 23, 2005 10:12 AM

The article posted perpetuates the myth that Inflation = Rising prices.

This is nonsense.

The only thing you ever need to know about inflation is that it is "too many dollars chasing too few goods."

Oil price increases brought on by the actions of supply & demand are NOT inflationary. Neither are airlines & shipping companies increasing prices in turn.

In the last few years Greenspan fired up the printing press, but their were/are plenty of "goods" to soak up the "too many dollars".

As some point, however, there has to be a reckoning. That may be happening (Chinese cooked books, EU Zone slowdown, etc.).

For the last two years, OJ has been right about inflation. That CAN change however.

Posted by: BB at March 23, 2005 12:01 PM

By the Chinese economic illusion collapsing which would send oil below $20 a barrel?

Posted by: oj at March 23, 2005 12:06 PM

Inflation = rising prices by definition.

Posted by: Tom at March 24, 2005 10:34 PM