What is the relationship between the credit crunch and inflation?Today, the latest US producer price inflation rate was published. The rate is running at almost 10 percent. Ever since, Northern Rock hit the skids, and LIBOR rates went mad, US inflation has reached ever skyward.
The reason isn't hard to find. It is the Fed's response to the crisis. Bringing interest rates down to 2 percent has set off inflation. It won't stop until the Fed calls time and raises rates.
4 comments:
Still kicking the corpse.
So what explains the German PPI at 8.9%???
The oil price is down from 147 to 110, that should ease inflation fears, no? And please do have a look at the complete commodity complex. It is coming down.
What's more, the EUR/USD is now at 1.47, down quite a lot from 1.60
cheers /pecanpie
Inlfation is a lagging indicator, not a leading one.
prices rose 6 months ago and inflation went nuts.
Now they have dropped and inflation will fall back.
The huge drop in money supply will also decimate inflation.
I think bernanke is right to worry more about deflation at the moment.
I am certainly deflated....
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