Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained tame outside of those two areas. Meanwhile, industrial output was flat in December, more evidence of a significant slowdown in the economy.
Consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said Wednesday. Consumers felt the pain when they filled up their gas tanks or shopped for groceries. Prices for both energy and food shot up by the largest amount since 1990.
Yet “All Is Well” ®
Luckily there are elections soon.
The increase in food prices is largely linked to the increase in fuel prices. I suspect we will see a ripple effect in the prices of other goods and services soon. Food prices, because it is the most necessary common and widely used good (we all must eat), tends to be one of the early warning signs of oncoming inflation.
All in all things are not looking good. I think that once the statistical dust has settled and economic historians have a chance to crunch the correct numbers it will show the United States entered a recession during the last quarter of 2007.
For those who invest I suggest adjusting portfolios to a more conservative line, with an emphasis on food and other recession resistant equities (unemployed people still need to eat). I would also suggest inflation insurance in the form of some gold.
“I would also suggest inflation insurance in the form of some gold”
Better to buy U.S. Treasury inflation-protected securities. Unlike gold, they pay interest. Better yet, invest regularly in a broad-based stock index fund like the Vanguard Total Stock Market Index Fund. Let other people buy high and sell low. Remember: by the time investors mass-migrate into a new asset class, they’re usually wrong.
Your and AP’s headline screams a bit too loudly. The following quote from the piece is relevant:
” CORE INFLATION, which excludes both energy and food, rose 2.4% last year, slightly LOWER than the 2.6% increase of 2006. It is the performance of CORE INFLATION that the Fed closely monitors.”
All you youngsters were too young to care or were not around in the early 80’s. Double-digit interest rates and serious unemployment took your breath away. The media is Democrat friendly and amplifies any bad news that can be used against GWB. Things could be better, but I still have confidence that in this election year there will be good economic news.
food prices have also gone up because of the ethanol issue – you need a lot of corn to make it, wich reduces supply, and then it becomes more expensive to feed livestock. Read more about that here: http://tinyurl.com/2eenxc