The US Department of Labour released their CPI figures on Friday. The CPI was up 0.1% for December which resulted in a full year Inflation rate of 2.7%. This was up from the previous year 2008-2009 of 0.8%.
Is this a good or bad thing? Well, like most things economic, it is a combination of both. It is good that the CPI is growing. It means that demand for certain goods is starting to increase. 2.7% is not high inflation by any means, so I'm sure the Federal Reserve will keep interest rates low in the short term.
However, if you look at the detail, we find it is mainly the Energy portion of the CPI that has resulted in the increase. Gasoline prices increased by 53% over the year....probably due to the US dollar decreasing over the year. This will improve as the US dollar increases over time. The next highest increase in the CPI was the cost of automobiles, no doubt due to the "Cash for clunkers" Government program. But if this has resulted in an increase in demand for the US car industry, then it can only be a good thing.
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