Economic Growth Across the United States Over

¶ … economic growth across the United States over the last few months and the inflation concerns stemming from the energy sector. The overall increase in consumer price index, which is the general measure of the inflation rate, is more than balanced by the increase in the income levels for the period. The increase is consumer prices between April and May (.5% increase) created fears of inflation. This steep increase however is not an accurate appraisal because it reflected the temporary surge in oil prices during that month. In general energy and food components are considered to be volatile and therefore price hikes of these products will normalize within a short period of time. Oil prices have since dropped down and by the end of June they were stabilized at close to normal levels. However, any sustained increase in energy costs would have drastic effects on the prices of consumer goods and increase the inflation. The core consumer expenditure index which does not include energy and food components was changed by a very little margin of.2% compared to the previous 2 months indicating economic stability. (Absence of serious inflation) Also, the average increase in consumer price index by 1.6% for the period of June 2003 to May 2004 is considered quiet normal.

Supply, demand and price are inter-related factors and the cyclical nature of the economy implies that changes are inevitable though controllable in any economy. As a general rule the increase in purchasing power results in greater aggregate demand. Industries must augment their production capacities to level off the increase in demands. If production does not match the requirements the end result is an increase in prices or in other words lowering of money value. (Inflation) In any economic cycle this fluctuation in demand and supply is unavoidable and inflation becomes part of it. The decreasing unemployment rates in America are indicative of a vibrant economy with consequent increase in demand for consumer and capital goods. Any surge in economic activity results in the inflationary risks. Inflation factor is a concern for a growing economy and is reflected as an increase in the Consumer price index. For the present period economists sound positive and the more or less stable CPI index indicates that inflation has been kept under control. Further any increase in consumer prices is to an extent balanced by a corresponding increase in income levels during the period. The higher consumer price is caused by the increasing transportation costs. The increased prices of gasoline and other fuels are attributed to the mid-east crisis. The situation is further affected by the steady drop in the oil production within the United States.

The increase in interest rates is a routine procedure to slow down the economic activity and in effect bring inflation under control. When the Federal Reserve increases the interest rate it translates to increased borrowing costs for the general public. This discourages borrowing and in turn restricts the flow of money into the private economy. Investments are also negatively affected by increased interest rates and hence the growth of economy is contained by the increase in interest rates. Over the last few years the U.S. interest rate has been maintained at 1%. The increase in interest rates by.25% is considered to be a gradual sustenance measure which would contain inflation without at the same time affecting the economic growth adversely. So the goal of the proposed increase in interest rate is to achieve a continuous moderate economic growth without the attendant inflation problem.