US Economy and Inflation Threats

In United States, the cost of living in Washington has increased by 0.5% in February, highlighting the highest monthly rate of inflation June 2009 as petrol prices continue to be pushed up by unrest in the Middle East, the Labour Department said.

On the other hand, a key gauge of the economy's performance rose for the eight straight months. The New York-based Conference Board's index of leading economic indicators gained 0.8 per cent in February, after a 0.1-per-cent rise in January due to snow storms in much of the US.

Over the last few months Inflation rate in the US has been increasing steadily amid strong gains in oil and food prices. This has prompted some policymakers to push the US Federal Reserve to pay more attention to the threat of inflation and consider tightening monetary policy.

The February price gain slightly beat the forecasts of economists, who had been predicting a 0.4-per-cent inflation rate. Consumer prices rose 0.4 per cent in January.

According to the department, Energy prices have increased suddenly and powerfully by 11% in the past year. The so-called core inflation rate, which excludes more volatile food and energy prices, rose just 0.2 per cent.
The United States central bank has so far shrugged off the fears of higher inflation, pointing to the low core rate and preferring to continue prodding the world's largest economy into a stronger economic recovery.
The Fed this week held interest rates at record lows of near 0 per cent and kept in place an unprecedented programme to buy up 600 billion dollars in government bonds. The European Central Bank by contrast is considering a rate increase in April.

The United States central bank has said it expects the spike in oil and food prices to be temporary. While the economy was now on a 'firmer footing,' unemployment remained too high at 8.9 per cent, the Fed's decision-making board said in its statement on Tuesday.

For the last 12 months, the inflation rate climbed to 2.1 per cent, compared to a year-on-year rate of 1.6 per cent in January. The core inflation rate stood at 1.1 per cent over the same period.
Ken Goldstein of the Conference Board said that sharply rising food and energy prices could yet prove a 'headwind' for the economy's recovery. Goldsteain stated 'Still, the way inflation will move is unclear, given the degree of slack in the overall economy, and especially in the labour market,'.


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