US inflation low, but interest rates are quite low
Consumer prices in United States advanced 0,1% last January following a drastic drop in energy prices for the second consecutive month, according to a release this week from the Labour Department.
Excluding the volatile components of energy and food, the Consumer Price Index increased 0,2% last January, for the fourth consecutive month.
Wall Street economists were expecting a 0,2% rise in the consumer price index following last week's release of the wholesale prices index which caused concerns about a resurgence of inflation and a strong response from the Federal Reserve regarding interest rates.
The latest consumer index report shows that energy prices actually dropped 1,1%, with fuel oil falling 5,2%, natural gas 3% and gasoline 2,1%. But energy prices had surged dramatically in 2004 and a renewed push this week has sent the barrel to 50 US dollars.
Food prices in the US last January increased 0,1%, the same as housing, leisure, education and communications. Clothing jumped 0,3% and medical costs kept creeping up, 0,4%.
Last week Federal Reserve chairman Alan Greenspan addressing Congress warned about midterm inflation and the need for re-establishing "fiscal responsibility".
The US economy is consolidating and with the exception of energy and food prices, inflation has "remained low" said Mr. Greenspan.
"The US economy seems to have begun the year growing at a reasonably good rate, and inflation and inflationary expectations remain stable", said Mr. Greenspan who nevertheless emphasized in the need to balance the federal budget that is running gigantic deficits.
However Mr. Greenspan did not mention that the Fed has consistently raised interest rates for the last eight times running, but admitted that the current basic rate of 2,5% adjusted for inflation is "quite low".