Chicago Daily Observer

The cost of living in the U.S. was unchanged in September, restrained by declines in fuel costs, automobile prices and airline fares that show the slowing economy is starting to cool inflation.

The Labor Department’s consumer price index was unchanged after a 0.1 percent drop in August; economists had forecast an increase for last month. So-called core prices, which exclude food and energy, rose 0.1 percent, also less than forecast.

Today’s figures show that for the first time in two years, prices didn’t increase for two straight months. Waning inflation gives Federal Reserve Chairman Ben S. Bernanke scope to lower interest rates further as policy makers attempt to unfreeze credit markets.

Commodity prices have fallen dramatically in the past five weeks. As recently as mid-July, gold was trading at $975 per ounce. Now it’s roughly $800, down about 18%. Meanwhile, oil has dropped from $145 per barrel to roughly $115, a decline of nearly 21%. As a result, many analysts are saying the Federal Reserve can be less concerned about inflation and can postpone raising interest rates.

I find this argument wrongheaded for two reasons. First, because inflation is running far above where the Fed ever should have let it go; second, because it contradicts the arguments about inflation and the Fed many of these same analysts have been making since last summer.

In the past twelve months, consumer prices are up 5.6% and producer prices are up 9.2%. The last time inflation was a bigger problem was when disco balls still hung in clubs throughout the US, and not because ... Read More...

In his final warning before hiking interest rates last week, European Central Bank (ECB) president Jean Claude Trichet said, “If we are not resolute, there is a risk that inflation will explode.” With this he lifted the overnight lending rate to 4.25%.

We are not sure of the exact numerical definition of “exploding inflation,” but the ECB is clearly worried that 3.7% growth in the European CPI over the past year is fueled by more than just energy and food.

This leads us to ask a rhetorical question: where does inflation come from? Sometimes an answer can be found at the extreme and today’s extreme on the inflation front is Zimbabwe, where prices are doubling every month.

So why is this happening? Is it due to rising commodity prices? Or, rising wages? No. Zimbabwe is experiencing hyperinflation because the government is printing money to meet its payroll. They ... Read More...