Price Indexes Rise, The Dollar Falls
The latest economic data has revealed that both the Producer Price Index (PPI) and the Consumer Price Index (CPI)
have gone up, in addition to the price of oil reaching record heights.
The PPI was released yesterday by the Department of Labor, showing an increase of 1.1%, seasonally adjusted.
The CPI rose 0.3%, seasonally adjusted. From September to January, there was a total increase of 2.8%. The steady consumer price increase paused last month, and last month’s increase adds up to a 3.1% rise in prices since September.
The price of oil spiked up to higher than $114 per barrel. This record high of oil costs will begin to reflect in gasoline prices even more in the coming months. The demands on gasoline in the warmer months will escalate the prices. The decreasing value of the dollar is also contributing to rising oil prices. Heating oil is also affected, but thankfully the weather is getting warmer.
The euro is rising to nearly $1.60. Import costs will truly begin to take a toll on our already slipping economy. Experts say that is the weakening of the dollar that is driving the price of oil higher. The trade value of the dollar is not getting better, and the continued interest rate cuts are keeping the dollar from gaining strength.
Further rate cuts are expected nonetheless, which will mean more price increases, and continued dollar weakness. The United States Federal Reserve is much more concerned with preventing a total credit crunch and maintaining liquidity in the financial markets. Stimulating economic growth with liquidity injections and loosening credit with rate cuts is also taking away from the value of the dollar and escalating prices, especially for commodities like food and energy.
Is there an end in sight? It will take the rest of the year to find out whether or not the recent moves were the right ones. Will the economic stimulus package boost consumer spending as the government hopes it will? That will take several months to find out as well. Hopefully something will prove to be effective in helping to improve our economy.
