Debate Over Inflation Flares Up After Consumer Prices Rise More Than Expected

Friday, February 18, 2011 06:34
Debate Over Inflation Flares Up After Consumer Prices Rise More Than Expected

Tags: commodities | inflation | U.S. economy

The Consumer Price Index saw its largest increase since October 2009 in January. That has some analysts warning that inflation is poised to hit U.S. businesses and consumers in the pocketbook. Others, however, say such fears are overblown.

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Most economists had expected consumer prices to rise 0.1% but the core index rose 0.2% instead, fueled by rises in apparel, airline fares and shelter costs. The core index doesn’t include food and energy prices.

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, told FOX Business he believes that inflation will rise, perhaps slowly, in part due to the Fed’s accommodative monetary policy. Richard Fisher, president of the Dallas Fed, also warned of upward pressure on prices.

But Charles Evans, president of the Chicago Fed, says inflation should remain tame as long as the jobless rate remains high. That view is in line with Fed Chairman Ben Bernanke’s often-stated opinion that inflation remains under control.

So far inflationary pressures have been contained despite increases in commodity prices partly because the price of services has remained low. When the cost of basic services starts going up, investors need to worry that inflation may begin to cut into their purchasing power.

Investors and advisors face a difficult task when it comes to hedging against inflation, because traditional inflation hedges such as precious metals already are trading at high valuations. SmartMoney takes a look at the various options investors face if they are looking for ways to protect against inflation.

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