Tags: Rising | Inflation | Fragile | Economy

Richard Barrington: Rising Inflation Threatens Fragile Economy

By    |   Friday, 23 March 2012 07:39 AM

February's 0.4 percent increase in inflation marks a significant jump in the pace of inflation and raises concerns about an inflationary trend, according to a senior financial analyst.

The fragile economy is particularly vulnerable to inflation, states Richard Barrington, writing for MoneyRates.com, a personal finance website.

Inflation could squash economic recovery like it did last year. Rising prices would push interest rates up, halting any chance of a housing market recovery and defeating the Federal Reserve's efforts to stimulate the economy.

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

Rising inflation will also wipe out people's savings.

"At a time when savings account rates are barely above zero, people who are dependent on deposit income are highly sensitive to any degree of inflation," Barrington writes. "February's inflation alone was enough to wipe out more than a year's worth of interest on the average savings account," he states.

"All of this makes the February inflation report a little ominous, and the March report well worth watching."

The jump was the highest monthly increase since last April, writes Barrington. The Consumer Price Index for the past 12 months increased by a moderate 2.9 percent, but the February increase did not make a larger impact on the yearly increase because inflation was also strong early last year, Barrington points out.

Rising prices of oil and gas, which accounted for most of February inflation increase, could spread throughout the economy because so much manufacturing and delivery depends on oil, he notes. Even though gas prices leveled off in March, the damage may have been done, as higher gas prices will still impact other parts of the economy.

Rising gas prices are indeed a cause for concern, states a BMO Capital Markets Research report, according to MarketWatch.

If gas prices increase 35 percent, annual purchasing power could drop by $170 billion and consumer spending by 1.5 percent, the study says, MarketWatch reports.

“By itself, it probably would not lead to a recession, but the adverse effects of higher joblessness on already-weak consumer confidence and housing markets could be troublesome, especially if Europe’s credit crisis worsened," states the BMO report.

Retailers focusing on rural areas and low- and moderate-income shoppers will suffer more than stores selling to more upscale shoppers in urban areas, it says.

Editor's Note: Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

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