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Keeping the beast in its cage

Comparing inflation – 1979 and 2006

Since taking the helm of the Federal Reserve in February, Chairman Ben Bernanke has sent the stock market into a tailspin, slowed hiring at businesses and increased interest rates to a point that some bankers are worried about a wave of foreclosures.

All in the name of fighting inflation.

Most economists expect the Federal Reserve to raise interest rates again this week for the 17th time in two years.

Higher productivity and more global competition are keeping high oil prices from bumping up the prices of other consumer goods, economists said. Technology has allowed U.S. businesses to increase their productivity by 3.9 percent in the first quarter alone, meaning they can absorb higher fuel costs without raising prices significantly. It’s a necessity in today’s business climate, said Harry Davis, a professor at Appalachian State University and chief economist for the N.C. Bankers Association.

“You cannot raise prices very much in this environment, because somebody, somewhere else in the world will produce the product and not raise prices,” he said. The United States imported $1.7 trillion worth of goods in 2005, 10 times more than in 1978.

Raleigh News and Observer (June 27)