Recent inflation data provided by the U.S. Commerce Department reflect prices rising at their fastest rate in over a year. Some figures recently posted in January’s inflation reports came in higher than forecasted. January’s annual rate of core inflation rang in at 1 per cent, up 0.2 per cent from December. The 0.2 per cent month-to-month gain in core inflation in January was double the average of economists’ forecasts. This figure does not include volatile food or energy costs. If food and energy were incorporated, the estimated inflation rate would rise to about 1.6 per cent.
The Federal Reserve instituted a $600 billion quantitative easing program last year in attempt to head off deflation and a new economic slump. Quantitative easing is essentially the process of creating money out of thin air. Conservatives who claim that it could lead inflation to spiral out of control, however, have heavily criticized the program. Their concerns primarily stem from the raging inflation period in the 1970s. We do not want spiraling inflation as our country is trying to regain prosperity. Quantitative easing quickly leads to increased inflation if too much money is created and if it is used improperly. Also, the increase in money supply in excess to what is required in the economy creates for an inflationary effect.
Title: US inflation figures outstrip forecast
Author: Stephen Foley
Source: The Independent, 2/18/11
Student Researcher: Karen Kniel, Sonoma State University
Faculty Evaluator: Sue Hayes, Sonoma State University