Inflation Looms as Consumers Continue Spree

Physician's Money Digest, April 2006, Volume 13, Issue 4

Business-Week

The biggest threat to inflation is not thewaxing and waning fuel prices—it's demand.According to an article in , the economy is growing so quicklythat pressure is building for businesses tofind available labor and hasten production.Retail sales increased 1.2% this pastDecember thanks to a rise in auto sales—up 4.3%. Despite fuel prices, consumerscontinue to spend, which means greaterdemand. Although increased spending doesnot generate inflation pressures, constraintson supply can produce higher prices. Thearticle points out that delivery times inOctober 2005 were the longest in over ayear, and the jump in last quarter was thegreatest in 26 years. To help meet demand,businesses have been using stockpiles andlowering inventories, which could lead tobusinesses justifiably raising prices ongoods and services. The article warns thatunless the economy slows during the firsthalf of this year to a pace that alleviatessome of the stress felt by business to meetdemand, inflation will continue to rise evenif energy prices fall. However, the economyhas grown 4% each year since 2003, withgrowth no less than 3.3% for any givenquarter, which exceeds the economy'sgrowth limit of 3.25%.