Importing inflation
Skyrocketing oil costs and high food prices have stirred inflation worries around the globe, and a weak dollar means we'll definitely feel the effects. John Dimsdale explains.
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Kai Ryssdal: You think we've got it tough with rising oil prices driving inflation? Get a load of the May wholesale inflation report out of China this morning.
Beijing says its producer price index jumped 8.2 percent last month. That's a 12 year high.
Prices in India are rising more than 8 percent a year as well and public protests over the cost of necessities have broken out from Malaysia to Portugal.
Inflation here is nowhere near double-digits, but our Washington bureau chief John Dimsdale reports, it's still no time to be smug.
John Dimsdale: The U.S. is importing global inflation thanks in part to a weak dollar. That makes foreign products and commodities more expensive. And the Federal Reserve's cut in interest rates to cushion the blow of the subprime mortgage crisis fuels even more inflation.
Bank of America economist Mickey Levy:
Mickey Levy: There's no question it has helped the economy, but it's not costless and one of the costs has been a weaker dollar that's put upward pressure on oil prices and prices of commodities and raw materials and the Fed knows that.
Fed Chairman Ben Bernanke last week acknowledged the dollar's low value has sparked inflation and that signaled the Fed's next move will be upwards.
For a while, Bernanke's comments strengthened the dollar and oil prices began to drop, but a day later, the head of the European Central Bank, Jean Claude Trichet, told reporters he may soon raise European rates. The prospect of higher returns in Europe undermined the dollar and oil shot to record levels.
Fed watcher David Jones thinks the ECB President has the wrong inflation-fighting prescription.
David Jones: If Mr. Trichet follows through on his threat at the next meeting to raise rates, it will cause a deeper recession in Europe, in my view, than we have had in U.S.
The Fed would like to delay stepping on the economic brakes since banks are still writing off bad mortgage loans, but inflation pressures at home and abroad will bring higher interest rates sooner rather than later.
In Washington, I'm John Dimsdale for Marketplace.
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From Frankfort, KY, 06/11/2008
Re your June 11 story on importing inflation:
When you compare our inflation rates with other countries, or even with other periods of time (like the early 1980s), you should also note how inflation is calculated. By not including food and energy in our inflation figures we are really skewing that information to make it seem like the economy is better than it really is. The rational for excluding these essential items was that they were too variable in the short term. That no longer seems to be a valid assumption. It is reasonable to assume that higher food and energy costs will be with us for a long time.
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