Gas Price Increases Lead to Higher Inflation
The latest economic news shows that consumer prices rose higher than economists expected led by gas prices, clothing and lodging. Even the core CPI (which strips out the volatile food and energy prices) was higher than expected, leading to concerns that after a long period of steady prices, inflation is on the rise. If inflation is back, the Greenspan will have more pressure to raise interest rates to try to constrain it. The biggest problem with rising inflation is that wages for the ordinary American have not been keeping up with the higher prices.
A separate report from the Labor Department showed worker wages were not keeping up with the quickened pace of inflation. Real average weekly earnings fell 0.7 percent in March and were essentially unchanged over the past 12 months.
Raising the interest rates will certainly end the housing boom and could catch those who overextended themselves with cheap variable rate mortgages in a nasty squeeze. The Bush economy is built on a very shaky foundation that can easily come undone if the housing bubble bursts.