Poor Ben: Highest Inflation Rate In 17 Years

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by: Tim Iacono

Poor Ben Bernanke has just about every conceivable economic statistic working against him at the moment as he attempts to engineer a "soft landing" for an economy that continues to reel from seriously ill housing and credit markets, two important areas that just don't seem to want to heal themselves.

While the boys at the Federal Reserve weigh the impact of a possible inter-meeting cut to short-term interest rates and they debate the magnitude of the overall stimulus to be provided before month-end - a half-point cut or, preferably, three-quarters of a point appear to be the only options acceptable to markets - newspaper headlines blare, "Inflation rate at highest in 17 years".

What is really needed here is a good, old fashioned (circa 2006) energy sell-off that would push oil prices back toward $50 a barrel. That development did a fine job of removing inflation as a hot dinner table discussion topic a little over a year ago as gasoline prices plunged (one of the very few easily measurable consumer prices) and American consumers resumed their normal patterns of excessive consumption, a key element of support for the finely tuned U.S. economy.

Come to think of it, maybe that's what the Fed is hoping to instigate as it keeps dragging its feet on lowering rates - that the economic outlook will dim so much that traders, investors, and anyone who has ever considered the purchase of an oil futures contract will figure that nobody's going to want $100 $90 oil if things keep going where they appear to be headed.

Of course, since these sort of trends have a nasty habit of quickly snowballing out of control (which some argue is happening right now), the old axiom of cutting off your nose to spite your face may come into play as well.

While the monthly data was inline with expectations - a 0.3 percent increase for the overall Consumer Price Index and a 0.2 percent increase when food and energy are excluded - each and every year, the December data is special because nearly everyone seems to look at the annual change during this month in an attempt to judge how well the government did in preserving the value of its currency for the year just concluded.

Not too good, apparently.

While the overall rate of 4.1 percent hit a 17 year high, the price increases that really hurt were in food and energy. Lower prices for mini-Cruzers and iPhones did little to help many Americans who continue to struggle with energy costs that rose by 17.4 percent and with food prices that gained 4.9 percent in 2007, the largest increases for both of these important categories since 1990.

Senior citizens are likely none-too-pleased to hear of the 4.1 percent number for overall inflation as it matches up poorly with their cost-of-living increase of about half that amount just a few months ago.

Making ends meet is getting harder.