Inflation

Higher than average inflation in the United States is but a fraction of the inflationary pressures that emerging markets currently face. This week, Snapshot will investigate inflationary pressure from various regions around the world.

In many countries large foreign exchange reserves are putting enormous pressure on monetary growth, which many economists believe is primary cause of inflation. In other countries, it appears rising global food and energy prices are increasing prices.

Snapshot asks, what is the leading cause of inflation, monetary growth or an increase in global demand?

Ben Bernanke said this morning that the Federal Reserve “will act in a timely manner as needed” to keep the economy growing, implying more interest rate cuts in March. In today's speech before the House Financial Services Committee, Bernanke said the threat of core inflation and overall inflation has risen, but that growth and stability are now the immediate priorities.

Snapshot asks, will the Federal Reserve make inflation an equal priority again? Is recent Fed policy emblematic of a global move away from inflation targeting?

The threat of a recession occurring at the same time as higher than expected inflation raises concerns about stagflation, a combination of inflation and stagnant growth not seen since the 1970s. Minutes from the January Open Market Committee meeting indicate the Fed will raise rates quickly to avoid inflationary pressures when concerns over slow growth subside. Despite inflationary pressure, investors predict the Fed will ease rates 50 basis points during their next meeting on March 18th.

Snapshot asks, are we or will we experience stagflation?