Trade And Inflation

Inflation & Trade Patterns

The Growth in both output and employment decelerated during 2006. At this time, the increase of inflation had occurred. The increase of inflation was driven in part by a tightening labor market and in part by a significant jump in energy prices. Exhilarated inflation caused the Federal Reserve to push short-term interest rates upward by more then anticipated a year ago. The fundamental key to this unfolding drama is the American Consumer. From 2001 to 2005, at the end of the economic recession, consumption spending accounted for 78% of the increase in output, with spending on housing construction comprising another 13%. Throughout the past year, consumption has captivated pretty well, sweeping 70% of growth in the first three quaters of 2006. Expectation was arrived of this continuation in this basic pattern--"consumption at a level that is adequate to maintain forward momentum in spite of continuing declines in the housing sector." Inflation will considerate a little from 2006, with an assist from relative stability in energy prices. The consumer price index will increase about 3% in the upcoming year. The federal reserve will keep the federal funds rate at its current 5.25% for most of 2008. There may be some reduction late in the year but long-term rates, on the other hand, may increase somewhat.

"The total December exports of $144.3 billion and imports of $203.1 billion resulted in a goods and services deficit of $58.8 billion, down from $63.1 billion in November. In December, the goods deficit decreased $4.6 billion from November to $68.2 billion, and the services surplus decreased $0.2 billion to $9.5 billion. Exports of goods increased $2.3 billion to $103.1 billion, and imports of goods decreased $2.3 billion to $171.3 billion. Exports of services decreased $0.1 billion to $41.2 billion, and imports of services increased $0.1 billion to $31.8 billion."

Environmental Quality

Exploitation of natural resources and environmental assests is an economic process that can be properly understood in a dynamic framework, which should moreover take into account many interconnections. For example, burning fossil fuels to carry out production of investment goods increases the stock of physical capital, but also increases the concentration of CO2 in the atmosphere and decreases