July 25th, 2011, By Dana Haugh
Core consumer inflation rose to its largest increase in three years this May. A core inflation of 3% has economists and financial experts feeling disturbed. This is also the strongest monthly rise since July 2008.
We are facing core inflation on both the goods and services sides. There is a split between prices and activity, where the activity data is very disappointing.
High inflation, especially energy inflation, has been slowing down growth. We will have to wait and see if energy prices moderate. It seems like gas (and food) prices may be nearing a peak, so hopefully we can expect a fall soon.
Other factors?
High commodity prices filtering in, such as steep rises in motor vehicle and apparel prices. Wage pressures from China are being felt here. Japanese supply chain also has big effects here- what happened overseas will continue to impact auto sales and activity in the second half of the year.
More bad news…
New York stat’s manufacturing sector fell below zero for the first time since November 2010. Some experts believe manufacturing will catch up, it’s just going to be a long process. However, jobs in the manufacturing sector have been scarce, and that is a reason to worry.
One opinion is “the Fed’s easing has been adding to the inflation, so maybe less will tame it.” This strong inflation pressure will make the Fed more careful in any upcoming actions. It’s going to be up to the Obama administration to encourage growth and get pro-small business policies in place.
All in all?
Economic slowdown is more protracted- there is a (hopefully small) halt in recovery.
One thing everyone can agree on is that we will have to wait it out and see what happens.
See what ten leading economists and other experts are saying about the economy at Reuters.