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Consumer spending fragile

As the countdown to Christmas is in full swing, core prices have been rising. Just last months, prices climbed a full 1.3 percent, the sharpest rise since 1980. This means a sharp rise in production cost for manufacturers, but with the housing market still far from stable, producers are reluctant to pass these extra costs on to the consumer. And with only a few days left to benefit from the hunt for last minute Christmas presents, this seems to be a sensible move.

The increase in core prices has again brought home to the Federal Reserve how important it is to maintain the fine balance between keeping inflation down and furthering economic growth, and it is expected that in the light of these latest figures the Fed will not be raising the current rates for a while. The Central Banks have slightly optimistic forecasts for the economy?s growth rate early next year, and it is vital that higher prices will not affect consumer spending.

For now, consumer prices remain stable, putting the brunt of the rise in prices solely on the producers and pushing their revenues. Especially the automobile industry has been doubly affected by the rising prices for basic commodities and the expected rise in energy prices. Right now, the average consumer is unlikely to feel this, but as consumer spending is set to rise in the second half of 2007, maybe producers will feel more confident to pass their extra costs onwards.