INFLATION RISES – BUT LIKELY NOT ENOUGH TO FORESTALL FED RATE CUT!

INFLATION RISES – BUT LIKELY NOT ENOUGH TO FORESTALL FED RATE CUT!

DESPITE 0.3% INCREASE IN CPI MANY PREDICT MINIMUM 1/2 POINT FED FUNDS DROP!

According to the U.S. Department of Labor consumer prices increased 0.3% in the month of December 2007 down from the 0.8% CPI increase in November. The Core CPI figure – which excludes energy and food prices from the formula – increased 0.2% Both numbers matched experts predictions.

For 2007 U.S. Consumer Prices on average increased 4.1% – their highest rate since 1990 due to higher costs for food medical expenses and fuel. This usually portends slow economic growth and a rising price climate. While slightly slower in pace than 2006 the year over year core CPI rose for the final three months of 2007 contributing to the higher annual rate.

Retail sales were sluggish in December as pre-holiday sales fell short of expectations. The cost of housing which accounts for 40% of the CPI increased 0.3% last month while average rent increased 0.4%. Energy prices increased 0.9% in December 2007 led by an indexed increase of 1.1% for gasoline and heating oil and a 0.2% drop in electricity prices.

Average real weekly earnings fell 0.9% in 2007 – worker’s pay did not keep up with the rate of inflation.

Despite the somewhat-scary numbers for inflation however Fed Chairman Ben Bernanke maintains his pledge to make "substantive" interest rate reductions if needed to support economic growth. The Fed next meets on January 29th and 30th. Most experts are predicting a 0.5% cut in the bell weather Fed Funds Rate – while a few are predicting a 0.75% decrease.

See the full detailed story with relevant links in today’s issue of The Wall Street Journal in an article written by Brian Blackstone.

DEAN MOSS & DEAN’S TEAM CHICAGO