Is Inflation About to Explode?

I saw this story and chart on Bloomberg today (sorry, not on the web). First the chart ...

Now, the story ...

Nov. 8 (Bloomberg) -- U.S. inflation will accelerate this month and next before slowing next year, according to Paul Ashworth, an economist at Capital Economics Ltd. in London.

``We expect U.S. headline inflation to rise very sharply over the next couple of months in response to the almost unprecedented surge in energy prices,'' Ashworth wrote in a research report published today.

The chart of the day shows Ashworth's forecasts for the consumer price index. He expects inflation to speed to 4.5 percent in November from 2.8 percent in September, ``and possibly even to 5 percent by the end of the year.'' The blue line shows the forecast for this month, the dotted line points to December.

``The Fed has made the right decision in cutting interest rates to counter what we believe will be a severe slowdown in economic growth in the fourth quarter and early in 2008,''Ashworth wrote. ``Fears that inflation is about to spiral out ofcontrol are exaggerated. Nonetheless, a near-term spike in the CPI will make the Fed's job even more difficult.''

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