Tags: Report Seeds of Future Inflation Planted

Report: Seeds of Future Inflation Planted

Friday, 17 Dec 2010 08:03 AM

Manufacturers in two major industrial areas of the country reported to the Federal Reserve that they expect costs to rise in the next year, a sign of incipient inflation, according to a report in The Wall Street Journal.

A New York Fed survey showed that manufacturers are bracing for a 4.3 percent leap in costs this year and another 4.5 percent next year, largely on rising wages and benefits costs. Deflation risk was now minimal, respondents said.

The Philly Fed simply said that more firms were predicting higher costs
than those expecting lower costs, also on benefits and wages, but also rising energy and materials costs, the newspaper reported.

The data point to the risk of inflation building in the production pipeline, which would add to rising costs Americans will see if the dollar falls in value and imports like oil and consumer goods become more expensive.

A falling dollar makes U.S. export products more competitive, thus spurring job creation, but higher living costs could eat up those gains in income. It also creates the risk of competitive devaluations by U.S. trading partners, eventually impoverishing everyone.

Rising inflation might lead to reconsideration of the Federal Reserve’s massive new quantitative easing program. The Fed has promised to print $600 billion to buy up Treasury debt in a bid to hold down long-term rates, which have been rising anyway ever since.

That’s in addition to the breathtaking $1.7 trillion dumped into the system in the first round of easing.

Blackstone CEO Steve Schwarzman told CNBC that he felt that the extension of the Bush tax cuts could add 1 percent to U.S. economic output in 2011, making the latest Fed easing move less necessary.

"I think you're going to have more people with more money. Without taxes going up you're going up you've got a variety of different incentives like cutting payroll taxes; there are other incentives in this package. I think economy will respond positively to that," Schwarzman said.

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Manufacturers in two major industrial areas of the country reported to the Federal Reserve that they expect costs to rise in the next year, a sign of incipient inflation, according to a report in The Wall Street Journal. A New York Fed survey showed that manufacturers are...
Report Seeds of Future Inflation Planted
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2010-03-17
Friday, 17 Dec 2010 08:03 AM
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