National consumer price inflation, driven by rising food and energy prices, is "at the moment uncomfortably high," said Federal Reserve Bank of Atlanta President and CEO Dennis Lockhart early Wednesday at Georgia State University's Economic Outlook Conference.
Lockhart's speech comes as critics have renewed their discussion of the Fed and the Federal Open Markets Committee's handling of the continuing economic downturn.
Lockhart said fuel and food prices continue to dominate the inflation discussion. Food and beverage costs, he noted, have increased 6.5 percent through the first half of the year, according to the Consumer Price Index, or CPI. Motor fuel costs have spiked 32 percent, and home fuel and utilities costs have risen 21 percent so far in 2008.
Those three components comprise 25 percent of consumer spending.
Lockhart noted the July CPI was at its highest level in 17 years.
"Believe me, I'm not happy about paying $3.80 for a gallon of gasoline, and I know you're not either," Lockhart said.
He also defended the strategy of the Fed and FOMC's current national monetary policy, noting the Atlanta Fed expects inflation to slow as continued economic weakness curtails some price increases.
The FOMC, and the Fed, push for price stability for consumers and controlling inflation as their key objectives.
The FOMC held the Fed Funds interest rate -- a key interest for banks and consumers who borrow money -- stable at 2 percent at its Aug. 5 meeting. After the meeting, the committee stated that while inflation remained high and difficult to predict, the group expected inflation to moderate throughout the rest of 2008.
"I concur with that view and believe current Fed policy is consistent with an easing in overall inflation given the dynamics of the economy," Lockhart said. "With weak growth and financial market strains, I believe the most likely outcome is that both headline and core inflation will diminish over the rest of 2008 and into next year as the temporary effects of energy and food price increases abate."
Lockhart added that he believes the central issue surrounding existing levels of inflation isn't the short-term effects, but the long-term impact on the national economic psyche.
"In the long run, the crux of the problem is not the elevated overall rate of inflation per se," he said. "It is the prospect that these elevated rates of inflation persist to such an extent that they become embedded in expectations and mainstreamed into the price and wage setting decisions of businesses, workers, and consumers."
Jacksonville Business Journal - by Joe Rauch
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