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Tuesday, December 16, 2003

Tell It Like It Is

Some call themselves economists, others work hard to try and be one, and others have the responsibility thrust upon them. Mine is tha latter case. I'd far rather read a good piece of literature, or start investigating the origins of Greek thought: but needs must. Now look carefully everyone at last months US consumer prices. This is much faster than even I had imagined, and with the dollar falling fast. Certainly Bernanke wasn't expecting this for another year. With the dollar at its old level, my guess is the US would be already mired in deflation. Also this has to be the response to all those who talked about China's growth fiction. Well fiction is becoming reality, and in the good ol' US of A. Of course this is still early days. But don't expect a rate increase any time soon. And keep watching the CPI!

U.S. consumer prices took an unexpected tumble last month, pulling the underlying rate of inflation down to a nearly 38-year low, a government report showed on Tuesday. Separate reports showed groundbreaking for new homes surged in November, while the shortfall in the U.S. current account, the broadest measure of America's trade with the rest of the world, shrank in the third quarter.

Reaction in financial markets to the spate of data was muted, with prices for U.S. Treasury securities edging higher as investors welcomed the lack of inflation. Economists said the absence of upward price pressures meant the Federal Reserve (news - web sites) could hold interest rates at 1958 lows for a long stretch. The consumer price index, the most widely used gauge of U.S. inflation, slipped 0.2 percent in November, the Labor Department said.

The so-called core rate, which strips out volatile food and energy prices, fell 0.1 percent -- its first drop since December 1982. Wall Street economists had expected both the overall CPI and the core index to tick up 0.1 percent. Closely watched core inflation has risen just 1.1 percent over the past 12 months, the slowest rate of advance since the 12 months ended January 1966. "This is certainly a surprise," said Parul Jain, economist at Nomura Securities in New York. "This is a reminder that there still is deflation in the system. We should still be concerned about downward pressure on prices."
Source: Yahoo News

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