Fed casts worried a eye on inflation
Energy costs must be watched, official says
SAN FRANCISCO -- Rising energy prices are pushing inflation about as high as the Federal Reserve can tolerate, Dallas Fed president Richard Fisher said.
''The inflation rate is near the upper end of the Fed's tolerance zone and it shows little inclination to go in the other direction," Fisher said in a speech to the Dallas Chamber of Commerce.
Fisher's comments suggest Fed policy makers are more concerned with inflation than a potential slowing of growth after hurricanes Katrina and Rita struck the Gulf Coast, cutting US energy production and sending oil prices soaring. ''Inflation has been on a slight upward tilt the past couple of years," Fisher said. ''We now face higher energy prices and businesses' desire to pass the increased costs on to their customers."
US consumer prices rose 3.6 percent in August from a year earlier. Excluding food and energy, the increase was 2.1 percent. Those figures do not include post-hurricane energy price increases.
The personal consumption expenditure index minus food and energy, the Fed's preferred inflation gauge, rose 2 percent in August from a year earlier, the upper end of the 1.75 to 2 percent range it forecast in July.
''We are dealing with the immediate and secondary effects of Katrina and Rita," Fisher said. ''In times like these the Federal Reserve must rely more than ever on anecdotal evidence to get a feel for the economy."
