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Signs That Inflation Is Nearing

The Cost Of Living – COL in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The retreat in fuel expenses this month signals inflation will hover around the Federal Reserve’s goal.

The consumer-price index was up 0.7%, the first increase in four months and the biggest since June 2009, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% rise. The surge in gasoline accounted for almost 75% of last month’s total price advance.

Bloomberg reports that the cost of living in the U.S. rose more than projected in February due to the biggest jump in gasoline prices in more than three years. The consumer-price index was up 0.7%, a Labor Department report showed today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 0.5% increase. The Federal Reserve Bank of New York’s general economic index eased to 9.2 this month from 10 in February, which was the highest since May. Betty Liu and Sara Eisen report on Bloomberg Television’s “In the Loop.”

Gasoline Prices – Households may get relief as fuel expenses are cooling. The average cost of a gallon of regular gasoline, which surged to a four-month high of $3.79 on Feb. 26, was down almost 10 cents to $3.70 on March 13, according to AAA.

Food Costs –- Food costs increased 0.1% after being little changed in January. They were up 1.6% over the past 12 months.

Inflation’s Bite – The rising cost of living gain squeezed paychecks. Hourly earnings adjusted for inflation fell 0.6%. They were up 0.1% over the past 12 months.

Overall consumer prices increased 2% in the 12 months ended in February, after a 1.6% year-over-year gain the prior month.

The core CPI also rose 2% from February 2012, following a 1.9% advance in the prior 12 month period.

There are two factors on the sideline that will inevitability unleash inflation:

Interest Rates – rates will rise. For now the Fed has been artificially holding down rates and the pressure is building and starting to show in consumer prices like gas and food. Rates have no place to move but up and that will dramatically affect all sectors of the economy, especially housing.

Money Supply –- The Fed has been flooding billions of Fiat dollars, much of it electronic and all diluting the underlying value of the US dollars. All of it is backed by the credit and good faith of the government, not by a tangible asset such as gold. History is full of lessons of this practice going astray.

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Category: Economy
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