Washington - In a second day of Congressional testimony, US
central bank chief Ben Bernanke warned Wednesday that inflation could
continue to threaten the economy, while government figures showed
rocketing petrol prices had pushed inflation in June to the largest
year-over-year increase since 1991.
Consumer prices were up 5 per cent from June 2007, the highest
such increase since May 1991, compared to a 4.2 per cent gain in May,
the US Labour Department said.
The Consumer Price Index increased to a seasonally adjusted 1.1
per cent in June from 0.6 per cent the previous month, the highest
monthly increase since 2005, the department figures released
Wednesday showed.
'With gasoline and other consumer energy prices rising in recent
weeks, inflation seems likely to move temporarily higher in the near
term,' Bernanke told the a finance committee in the US House of
Representatives.
Rising inflation could eventually put further pressure on the
Federal Reserve to increase interest rates after a series of cuts
aimed at bolstering the faltering economy, but analysts said Bernanke
appeared to indicate rates would remain steady when it meets again
August 5 and for some time to combat ongoing issues in the financial
sector.
'Given the high degree of uncertainty, monetary policy makers will
need to carefully assess incoming information bearing on the outlook
for both inflation and growth,' Bernanke said Wednesday. 'In light of
the increase in the upside inflation risk, we must be particularly
alert to any indications, such as an erosion of longer-term inflation
expectations, that the inflationary impulses from commodity prices
are becoming embedded in the domestic wage- and price-setting
process.'
In June, Bernanke said that the threat of an economic downturn had
diminished, and the Fed had left the benchmark interest rate
unchanged at 2 per cent - after seven cuts since September. But
minutes from the Fed's meeting, which were released Wednesday,
indicated some members had pushed for rate increases.
Soaring energy prices made up two-thirds of the June increase,
with the energy index rising 6.6 per cent from a 4.4 per cent
increase in May. Food prices rose 0.8 per cent, while core prices,
which exclude food and energy, were up 0.3 per cent.
Bernanke stressed that the inflationary pressures of fuel and food
had yet to spill over into other areas, but noted businesses could
begin to pass along more of those costs to consumers.
The closely-watched remarks reflected renewed turmoil in markets
that prompted the government over the weekend to shore up Fannie Mae
and Freddie Mac, mortgage companies chartered by the federal
government but owned through publicly traded shares, with guarantees
to back their debt if needed.
Bernanke defended the move in the face of criticism from members
of Congress, stressing the firms' importance to the housing market.
'In the near-term, thinking about the needs of the housing market,
I think the right solution is to keep them in their current form but
to provide very strong oversight that will assure adequate capital
going forward,' he said, adding the firms were not in danger of
failing and regulators could consider options from nationalization to
privatization to keep the mortgage firms solvent in the future.
His testimony came a day after he addressed a similar Senate
committee, warning that the US economic outlook was 'uncertain.'
USA
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