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Inflation Worries Permeate U.S

Inflation Worries Permeate U.S

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Published by: xxxcollector on May 05, 2010
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05/04/2010

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May 3, 2010
Inflation Worries Permeate U.S.
More than half (55%) say they are "very concerned" inflation will climb by Dennis Jacobe, Chief EconomistPRINCETON, NJ -- Although the Federal Open Market Committee said "inflation is likely to be subduedfor some time" after its meeting last Wednesday, 55% of Americans in an April 8-11 Gallup poll are "very concerned" inflation will climb, and another 29% are "somewhat concerned." This level of concern aboutinflation also seems to reflect consumer inflation expectations contradictory to the FOMC's assertion that"longer-term inflation expectations [are] stable."
5/5/2010 Inflation Worries Permeate U.S.gallup.com//Inflation-Worries-Perme1/4
 
 A higher percentage of lower-income than of upper-income Americans are "very concerned" aboutinflation, likely resulting from lower-income families' tendency to spend a much larger proportion of theirincome on the basic necessities experiencing the most pronounced price increases -- food and energy.More Westerners than Easterners are very concerned, possibly reflecting the higher gas prices in that partof the nation. Concern is greater among conservatives than among liberals or moderates, perhaps because, compared with the other groups,conservatives are less likely to say they enjoy spending(vs.saving) and, therefore, they may be more price sensitive; and more Republicans and independents thanDemocrats are very concerned,given current political predispositions.
Few Escape Financial Concerns
With today's nearly double-digit unemployment rate, it is not surprising that among their other concerns,
5/5/2010 Inflation Worries Permeate U.S.gallup.com//Inflation-Worries-Perme2/4
 
68% of Americans are very concerned that unemployment will remain high. Largely consistent with fearsof higher inflation, 45% are very concerned that interest rates will climb. Even after the sharp recovery on Wall Street over the past year, 35% are very concerned that the stock market will fall -- possibly reflecting, at least in part, the percentage of Americans who are significant investors in the stock market.
Commentary 
The FOMC statement last week suggests that "the pace of economic recovery is likely to be moderate for atime," and goes on to note that "substantial resource slack [is] continuing to restrain cost pressures."Gallup's economic data supportthe idea of a moderate economic recovery .Gallup's underemployment dataalso help explain why so many are concerned that unemployment will remain high.However, it is not clear that slack in the U.S. economy is going to keep prices low. For example, theBureau of Labor Statistics reported two weeks ago that producer prices increased by 6.1% in March on a year-over-year basis. Gas prices, a component of producer prices, are up 80 cents per gallon, or 39%,compared with a year ago.While the FOMC might point to the relative stability of producer prices minus food and energy -- theseincreased 0.8% in March year over year -- to support its claims about inflation, Americans can't simply exclude food and energy costs from their monthly expenses. Nor, it appears, do they exclude them fromtheir expectations for future inflation.It is not difficult to justify keeping interest rates at historic lows, given 19% underemployment andsubdued inflation. However, if Americans' inflation fears are correct, then the Federal Reserve may facesome increasingly difficult policy decisions. Flooding the economy with money when inflation is surging isa much easier decision politically than economically. Increasing interest rates as midterm electionsapproach is just the reverse.
Survey Methods
5/5/2010 Inflation Worries Permeate U.S.gallup.com//Inflation-Worries-Perme3/4

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