Inflation hits consumers worldwide
The rising prices complicate policy efforts to battle recession.
SOURCE: Merril Lynch/Rich Clabaugh–STAFF
Oil hit a record $112 per barrel this week, and a United Nations official warned of continued pressure on food prices, which by one index are up 45 percent in the past year.
The challenges are worst in developing nations, where raw materials account for a larger share of consumer spending. But another factor – the sagging value of the US dollar – means that imports cost more in America and other nations that peg their currencies to the dollar.
Still, regardless of this currency phenomenon, several broad forces are pushing prices up.
After years of strong global economic growth, prices of oil, grains, and some metals have spiked. Investors are adding fuel to that fire by buying up hard assets like commodities, which are viewed as a hedge against inflation.
More fundamentally, many nations have been relatively loose in the creation of money supply. For all the news about interest-rate cuts by the Federal Reserve, this trend goes well beyond US shores.
"We got to the higher inflation rates we have today versus a few years ago because monetary policy in general has not been real restrictive," says Jay Bryson, global economist at Wachovia Corp., a bank and investment firm in Charlotte, N.C. "At the end of the day the central banks of the world were running relatively loose policies."
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