Inflation On The rise

The dollar continued to fall today despite the nice rise in the equity markets. The CPI was up .7% for June, mostly due to rising energy prices. If the economy is indeed ready to rise (jury still out on that one) then inflation will be the big risk going forward. Expansion of the money supply coupled with economic growth will surely result in a rising inflationary environment.-Lou

Costly Gas Pushes Up Consumer Prices

Consumer prices rose in June at their quickest pace since last summer, as expensive gasoline claimed a larger chunk of household budgets.

The Labor Department said Wednesday that its Consumer Price Index climbed 0.7 percent last month from May, slightly more than the 0.6 percent increase expected by economists. The index’s core rate, which excludes energy and food prices, also accelerated quicker than expected, to 0.2 percent.

But fears of broad-based inflation are not likely to be set off now, after economists anticipated that a month of roller-coaster trading in the oil markets might ultimately skew the June index.

“The C.P.I. is not much of a story this month,” said Mickey Levy, Bank of America’s chief economist. “The core is just moving sideways and then you have the upward pressure on energy and gas prices.”

But the data also soothed fears that the economy might be slipping into a deflationary trap, where unemployment, falling wages, lower aggregate demand and shelf prices spiral downward. Mr. Levy noted that prices had held up surprisingly well despite the severity and length of the recession. “I expect core C.P.I. to drift lower but not outright decline,” he said.

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