WASHINGTON - The U.S. economy is showing the strain that the twin hurricanes Katrina and Rita had on it as manufacturing output slumped and consumer confidence weakened in September. On top of this the inflation for the month soared by 1.2 percent. The US Labour Department said yesterday that this is the largest increase since March 1980.
"Higher energy prices are not providing any big headwinds for the economy and inflation remains very contained," said Chris Rupkey, senior financial economist at Bank of Tokyo in New York. Energy prices have soared over 17.9 percent in the aftermath of Katrina and Rita and it is looking like the economy will take some time to recover from this double blow.
Analysts also say this is the one reason why the U.S. Federal Reserve Board will continue to hike rates since the energy bill is bound to filter down to essential commodities. "The Fed can't wait for core inflation to pick up before they act," says Mark Vitner, senior economist at Wachovia Securities in Charlotte, N.C.
This hike means that Social Security payments will go higher than they ever have in the last 15 years over the next 12 months. Douglas Porter, BMO Nesbitt Burns deputy chief economist said in a written report, "At least one spooky theme behind these moves has been mounting concern that the latest spike in energy prices will cascade into other costs and prices, drive up inflation expectations and force the Fed to be even more fearsome than expected in its tightening campaign."
White House officials say that they have the confidence that the Fed will take the necessary steps to see that this scenario does not go beyond control. "The President has confidence in the Federal Reserve when it comes to monetary policy and their ability to address any inflation concerns," White House spokesman Scott McClellan said.
Posted
on : Sun, 16 Oct 2005 21:20 GMT | General News
By : Rob Davis
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