Wednesday, June 14, 2006

Interesting Chance

The Fed seemed destined to raise the prime rate again. The next Two months may be the time to evaluate what impact Interest rate increases has in actually raising the Inflation rate. It must be remembered that June and July are the two prime months for Household establishment, as Students leave High School, College, and Home for independent living. There should be a surge of Retail Sales to accomodate this leave-taking, and if there is not, it must be attributed as a drop in Retail Sales overall. Retail Sales were functionally flat in May. Under the condition that Retail Sales do stay equivalently flat (plus or minus 0.5% of Total Sales), then all Inflation must come from Core Inflation increases. Volitile Products in both the PPI and CPI must stay flat or decrease during the Period, in order to get a good picture on how an increase in Lending rates affect the real Inflation in both the PPI and CPI. It may be an excellent opprotunity for an economic model experiment in the total economy.

Conditions may be fortunate for this potential isolation of economic factors. Increase in Prices will be isolated solely to increases in Operational Costs, independent of Commodity increases. We can then isolate into Factor Costs for the Inflation. This will give Us some idea of the impact of Operational Funding Costs. We will have a sustaining force to maintain Sales, potential actual declining Commodity Costs, and isolatable Factor Costs. This may be an opprotunity for this author to prove the Fed prime has adverse pressure on Inflation, when the Prime rate is raised above 3.75%.

This Author has always contended the power of the Fed to control Inflation was constricted to a short range of prime rates between 2-3.75%. Rates set below 2%, or set above 3.75%, actually fueled Inflation; the former rate by generating excess economic activity, the later being itself an impulse pressure of Inflation due to its effects on Operating Costs. We might finally get a definitive answer to that Contention. lgl

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