The recent report from the Labor Department has shocked the economists and analysts as it held that Consumer Price Index remained flat in November. The Federal Reserve might have taken a sigh of relief as it was struggling to check the inflation rate through higher interest rate. The findings are absolutely unexpected since there was expectation that the retail price would rise by 0.2 percent. However, the unexpected check in the retail prices owing to the fact that the cost of petrol continued to fall.
The Labor Department further reported that the prices have gone up by two percent during the past 12 months, which is still higher that Federal Reserve’s inflation comfort zone, however it is down from last year’s 3.4 percent rise. Definitely fall in oil and gasoline prices have worked in the favor of consumers.
On the other hand, economists are arguing that the Federal Reserve has broken the back of any threat perception pertaining to inflation. However, it might help ending the speculation that the interest rate increase will be coming anytime soon. At the same time, it triggered speculations that there may be rate cut sometime before mid 2007.
However, the Federal Reserve on its part has done a remarkably brilliant job to manage this period in the economy. The Fed managed to slow the economy just on the threshold to allow inflation to come back down to the preferred level without causing much slowdown in the overall economy.
