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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Record-high energy prices did not spill over into the rest of the economy.
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Perhaps the single best piece of economic news in 2005 was that record-high energy prices did not spill over into the rest of the economy. While the Fed can be relaxed about inflationary risks in the U.S. economy, its role is to preempt.
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Even before the hurricane hit, rising energy prices were having a dampening effect on the economy,
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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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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 typical pattern with a natural disaster like this is that the regional economy gets clobbered but you can barely see it in the national statistics. This time it is very different because of the impact on the energy infrastructure.
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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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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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The losers were on the low end. Retailers like Wal-Mart had a pretty lackluster holiday shopping season because their customers were hit the hardest by the energy situation.
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I think the way out of these deficits is that the U.S. currency will start to come down over the next two to three years.
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Record-high profits, combined with solid economic growth and rising capacity utilization will translate into robust capital spending - all good news for the industrial sectors 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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When it is up around 6%, it feels a lot worse.
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While inflation remains tame, inflationary pressures keep building. Thus, the Fed can't let its guard down.