Nariman Behravesh
Nariman Behravesh
Nariman Behravesh is Chief Economist at the consulting firm IHS Inc. and author of Spin-Free Economics: A No-Nonsense, Nonpartisan Guide to Today's Global Economic Debates. Directing the entire economic forecasting process at IHS, he is responsible for developing the economic outlook and risk analysis for the United States, Europe, Japan, China and other emerging markets. He oversees the work of over 400 professionals, located in North America, Europe, Asia, Latin America, the Middle East and Africa who cover economic, financial...
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There is beginning to be evidence that high energy prices are starting to spill over into the rest of the economy.
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It is encouraging that core inflation in 2005 was no higher than the year before even though we had record oil prices. From that perspective, the Fed can feel confident that inflation won't get out of control.
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The problem is the combined effects of the disruptions from Katrina and Rita, plus the ripple effects in the economy from higher energy prices,
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The Fed can take comfort in the fact that core inflation remains tame, despite some modest inflationary pressures - gradually rising wage inflation, tighter capacity constraints and higher oil prices.
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The big uncertainty is how much of a hit the housing marketing will take. Is it going to be a hard landing or a soft landing? I worry about that much more than I worry about high fuel prices right now.
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The most pleasant surprise and remarkable development in 2005 has been the resilience of the US and Asian economies to record high oil prices.
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The main thing is cost-savings which radiate out in the form of lower prices for high-tech goods, and higher profit margins for the companies,
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The higher energy costs will put a squeeze on both businesses and households. They're spending so much on energy - the households on gasoline, the airlines on jet fuel, for example - that they'll have to curtail elsewhere.
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These high energy prices are beginning to spill over into the rest of the economy. Finally, airlines are able to raise ticket prices and hotels are able to raise room rates and on and on.
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While inflation remains tame, inflationary pressures keep building. Thus, the Fed can't let its guard down.
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Even though consumers may be a little jittery, they haven't stopped spending.
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The good news for the U.S. is that growth has diversified. We aren't just relying on the consumer and housing.
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We seem to be able to absorb serial shocks.
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While there is no room for complacency, the Fed can take comfort in the fact that core inflation remains tame, despite some modest inflationary pressures. Global Insight predicts that the Fed is near the end of its tightening cycle.