Just dusting this off
Global monetary policy: A nasty whiff of inflation | The Economist
INFLATION was supposed to be dead. Yet back-of-the-envelope estimates by The Economist suggest
that in September America's 12-month rate of consumer-price inflation
will jump above 4%—the highest since 1991. If so, this more than
justifies the Federal Reserve's decision this week to raise its fed
funds rate by another quarter of a percentage point, to 3.75%. Despite
calls from several American politicians and economists for a
“compassionate pause” in the Fed's tightening, because of fears that
Hurricane Katrina could depress economic output, the Fed is more worried
about the risk of higher inflation than about slower growth.
Average petrol prices in America fell back to $2.76 a gallon this
week, from a peak of $3.07 a fortnight ago. However, the immediate path
of prices is uncertain: Hurricane Rita, an even bigger storm that was
heading for Texas this week, may well do further damage to America's
Gulf coast refining capacity. Even without an extra push from Rita, the
average price of a gallon in September will be well above that of last
month, giving consumer-price inflation, already 3.6% in August, an extra
fillip.
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