Tags: Edelstein | Dollar | Inflation | Pressure

Paul Edelstein: Strong Dollar May Curb Inflationary Pressure

Monday, 19 Dec 2011 12:52 PM

High energy and food prices pushed up inflationary pressures in 2011 although a stronger dollar will help reverse that trend in 2012, says Paul Edelstein of IHS Global Insight.

Core inflation, which is stripped of volatile food and energy prices and is the tool on which the Federal Reserve generally relies when setting interest rates, has remained stable.

However, inflation figures in November show that over a year, fuel oil surged 25 percent, while gasoline was up 19.7 percent.
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Energy as a whole was up 12.4 percent, compared with a 4.6 percent annualized increase in food prices, the Journal adds.

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(Getty Images photo)
Core inflation, however, came in at 2.2 percent.

The European debt crisis has sparked a flight to the dollar for safety, and a stronger dollar can buy more commodities, thus easing the pressure at the pump and at the grocery store.

"Now that the weakening global economy and stronger U.S. dollar are pushing down commodity prices, upward pressure on the cost of living should recede," Edelstein says, according to The Wall Street Journal.

"We are already seeing this in overall inflation," Edelstein says, pointing out the overall headline rate has fallen to 3.4 percent in November from 3.9 percent in September.

Others agree that despite pricey fuel, inflation is not a problem in the United States.

"The state of the U.S. economy is not of too much concern to the markets right now. While U.S. inflation is higher than most would like, it is running lower than in the other major economies," says David Miller, a partner at Cheviot Asset Management, according to Reuters.

"Given that U.S. growth has also ticked up, in marked contrast to the eurozone, the markets will not take fright at 3.4 percent inflation. On both inflation and growth the U.S. currently looks a safer bet than Europe."

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High energy and food prices pushed up inflationary pressures in 2011 although a stronger dollar will help reverse that trend in 2012, says Paul Edelstein of IHS Global Insight. Core inflation, which is stripped of volatile food and energy prices and is the tool on which...
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Monday, 19 Dec 2011 12:52 PM
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