US Price Spikes Not As Bad As Analysts Forecast

By Stewart Douglas

Wall Street’s worry has begun to subside on the back of Federal Reserve Chairman Ben Bernanke’s speech to the National Bureau of Economic Research.

Bernanke’s comments came on the back of a day of sliding trades on the Dow Jones, and other world stock markets, relating primarily to the future of US inflation.

“Swings in volatile energy and food prices will have minimal impact on inflation as long as inflation expectations are held steady,” Federal Reserve Chairman Ben Bernanke said.

Wall Street has grown edgy over the recent persistent price jumps in energy and food costs and has eagerly looked toward the Fed’s view as an indicator of the forthcoming economic climate.

In response, during his speech to the National Bureau of Economic Research, Bernanke explained that as long as inflation expectations do not fluctuate too greatly, then the changes in volatile energy and food prices will have minimal influence on core inflation.

However, energy and food prices have not been included in this forecast, and are widely considered to be the main perpetrators of overall recent inflation.

Bernanke also detailed that the similar abrupt increases of energy of the United States in the 1970’s that led to constant inflation have not reoccurred with current increases in prices.

Apart from Bernanke’s standings, some analysts feel that policymakers should pay close attention to the inflation of food and energy.

The recent persistence of inflation in these prices could affect other economic factors over the coming week. 

However, Bernanke strongly endorsed the Federal Reserve’s consistency of concentrating more firmly in core measures instead of broad measures in setting monetary policy.

“Inflation is less responsive than it use to be to changes in oil prices and other supply shocks,” Bernanke says. Despite that, Bernanke says the Federal Reserve, when forecasting inflation, must still take into account the possibility of core inflation due to the abrupt increases in food and energy prices.

Bernanke explained that this not happened, and though core prices remain steady, the possibility of future inflation is still there.