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Inflation Fears May Be Overblown

[Jul 2, 2007.]


A recent report by the Associated Press indicates that worries about inflation may be premature.

The report indicated that, if you consider wholesale prices without taking energy and food costs into consideration, the situation is certainly not bleak. In fact, wholesale prices appear to be holding steady, indicating that the Federal Reserve may not alter interest rates after all.

The core pricing index, which excludes energy and food, increased a slim 0.2 percent in May. In April, the figure actually held steady.

As a result of this positive pricing news, the Dow Jones industrial average experienced its best two-day advance since July of 2006. The upsurge in the Dow indicates that investors are not as worried about the U.S. economy as one might thing.

If, in fact, inflation is not a worry, the Federal Reserve may not change interest rates after all.

Jay Suskind, a trader with Ryan Beck & Company, told the AP, "Now perhaps the glass is being seen as half-full. If the reason for higher interest rates is growth, well, at the end of the day, that's what grows corporate earnings."

In other words, while increasing interest rates can be a worry, the fact that the economy is growing is good news for American business. Since business provides the basic barometer for the economy, the financial outlook for the U.S. appears to be brightening, despite some storm clouds spotted on the economic horizon at the beginning of the year.

Still, oil prices have been on the rise, with ExxonMobil, Chevron, and Conoco Phillips all seeing increases in excess of one percent. Preliminary signs indicate that energy prices and food tabs may continue to increase in the months ahead. As a result, it might be said that current economic news is a mix of the good and the bad. Investors, at this point, appear to be banking on the idea that the good will triumph in the end.

Julie Ann Amos
July 2nd 2007

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