Friday, June 13, 2008

U.S. inflation hotter than expected

Rising prices for gasoline and energy pushed the rate of inflation in May in the United States ahead of economists' expectations.

Consumer prices were up by 0.6 per cent from April. Economists had been looking for an increase of 0.5 per cent.

May's increase was the largest one-month rise since November.

Gasoline prices were up by 5.7 per cent, while foods prices rose by 0.3 per cent on gains in the cost of beef and bakery products.

Year over year, the May inflation rate was 4.2 per cent, again ahead of the 3.9 per cent economists had been projecting.

The inflation report provides ammunition for the Federal Reserve to possibly begin boosting interest rates after cutting them from September to April.

"As energy prices are unlikely to cool in the near term, we should see continued hawkishness on inflation by Federal Reserve officials which suggests that the Fed is indeed on hold and that the next move for the Fed could indeed be a rate hike, rather than a rate cut," said Charmaine Buskas, senior economics strategist at TD Securities, in a commentary.

On June 9, Federal Reserve chair Ben Bernanke suggested that further rate cuts in the U.S. might be off the table because the risks to growth aren't looming as large any more.

"The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so," Bernanke said.



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