Inflation boost for Dow
Wednesday 19 August 1998
US consumer price inflation rose slightly to 0.2 per cent in July, up from a 0.1 increase in June. Core inflation - excluding volatile energy and food prices - rose at the same rate. Inflation is running at an annual rate of 1.5 per cent for the first seven months of the year, down slightly from 1.7 per cent for all of last year, with the core rate at 2.4 per cent compared to 2.2 per cent in 1997.
The Federal Reserve Open Market Committee was meeting yesterday to examine the prospects for monetary policy, but economists did not expect changes. The US economy shows no signs of descending into an inflationary spiral, despite several years of strong growth. Expansion has moderated in the second quarter, as the impact of slower growth and currency depreciation in Asia starts to hit the world economy.
The US trade deficit with the rest of the world has soared as exports have declined, but the trade deficit for June fell slightly, the government said. It stood at $14.14bn, down nearly 9 per cent from a revised $15.54bn the month before. However, for the year as a whole, the trade deficit looks to be heading for a record $158bn, up from $110bn last year, as exports to Asia plunge. The deficit for the second quarter of the year was a record $44bn; the last quarter anywhere near this high was at the end of 1987.
Concern that US policy tightening might exacerbate conditions in the world economy is one factor inhibiting the Federal Reserve from raising interest rates, but it indicated at its last meeting that it was leaning towards higher rates because it considered the risk of inflation greater than that of recession.
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