Huge rise in US Inflation

The Washington Post is reporting that the US Consumer Price Index rose 1.2% in one month, and 4.7% in the 12 months ending in September. The high price of oil is finally beginning to bite.

While the latter figure - 4.7% - is not dangerous it is very close to the "upper limit". What is concerning is the 1.2% increase over one month. From my guestimations, if such an inflation rate remains increasing at that rate over a twelve month period, the figure is close to 10%.

According to The Post, it is the largest monthly rise in inflation in 25 years. That's serious stuff.

In practice, this means one thing - Alan Greenspan is going to keep pushing the interest rates up. The Federal Reserve Bank controls inflation by restricting the money supply. By raising rates, money becomes more valuable, and people are more likely to save.

The downside is that higher interest rates impact on spending. People with mortgages have to pay more in interest, and have less to spend when they go shopping. It also impacts the sharemarkets, since investing in US Treasury Bonds becomes more attractive than equity.

Alan G may be tempted to give a big lift to the rates sooner rather than later. He may also be tempted to give a 50 basis-point increase (increasing the rates by 0.5%)

This report has just come out in the news. Expect the markets to go berserk.

See my article "A Perfect Storm approaches America" for more sordid details of what is to come.

From the Osostrian School Department

© 2005 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/

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