MercoPress. South Atlantic News Agency

US inflation ‘under control’; jobs insufficient to absorb new graduates, says Bernanke

Stability in labour costs balancing rise in commodity prices

The recent hike in oil prices will likely cause a “temporary and relatively modest increase in U.S. consumer price inflation,” but sustained increases could pose a more serious threat to the economy, Federal Reserve Chairman Ben Bernanke said earlier this week.

He told the Senate Banking Committee that the Fed will “respond as necessary” if signs emerge that global oil prices, which went above 100 US dollars a barrel last week, are spurring inflation.

“Sustained rises in the prices of oil and other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored,” the chairman said in his prepared remarks.

He also said that up to now inflation is under control in the United States, thanks to the rise in commodity prices being balanced by stability in labour costs.

Bernanke expressed confidence in “a more rapid pace” of economic growth in the U.S. in 2011, in the range of 3.5%/4%, driven by “rising household and business confidence” and improving credit conditions.

The chairman also reminded the committee that the Fed has a double mandate to control prices and create jobs.

While noting “some grounds for optimism about the job market,” he said that if “the rate of economic growth remains moderate, as projected, it could be several years before the unemployment rate has returned to a more normal level.”

Bernanke said that even though in 2010 around 1 million new jobs were created, the volume is “barely sufficient” to absorb new graduates and others joining the workforce.

The Fed’s latest forecasts place the unemployment rate for the end of 2012 at between 7.5% and 8%, compared with the current 9% jobless rate