Monday, August 13, 2007

Importing Inflation

Many on Wall Street are calling for Fed chair Ben Bernanke to cut interest rates to stem problems from the subprime mortgage mess, but so far Bernanke has used rising inflation numbers to keep the Fed Funds rate at 5.25%.

Although we will have to wait until tomorrow for the Producer Price Index numbers and until Wednesday for the Consumer Price Index numbers, last week we learned that import prices were up 1.5% in July, the fifth straight month that import prices have increased.

Prices are increasing so dramatically overseas that the Wall Street Journal reported that the "Era of Imported Disinflation" is over.

The inflation numbers from China today seem to back that up:

SHANGHAI, China -- A surge in food prices pushed Chinese inflation in July to its fastest growth in a decade, prompting fresh predictions of a further interest-rate increase at a time when credit woes are forcing the U.S. and other major economies to consider looser credit.

China's National Bureau of Statistics said its consumer-price index jumped by 5.6% in July from the same month last year, the highest rate of increase since 1997. Food prices were the main culprit, led by a 45.2% rise in some meat prices.

The inflation report underscored that China, once described as exporting deflation to the rest of the world, is now more likely to be exporting inflation. In the U.S., prices of Chinese imports have been climbing faster than at any time since the U.S. began tracking them separately in 2003. They are up 1% over the past three months, equal to a 4.1% annual rate.

4.1% annual increase in the price of Chinese imports?

Yeah, you can bet we're importing inflation here.

Bernanke can certainly cut interest rates to make the shills at CNBC and the cry babies on Wall Street happy, but he'll certainly not be helping the problem with inflation.

He won't cut. Injecting liquidity seems to have solved the very short-term problem.

He can always inject more if he has to. Cutting rates will just fuel the bubble once again.

Don't worry, he won't cut. Although, I've been wrong before (a lot).
PPI and CPI basically came in lie w/ expectations. But import prices are up, Norway raised its rates, other central banks across the world have either raised rates recently or look like they're going to - I can't see how Bernanke can lower rates here unless the economic data gets really bad, and so far, it hasn't.
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