Fed needs to recognize Inflation is a gamechanger

March 5, 2011
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At the half-way point of the first quarter, area industries are reporting more significant gains than expressed in the cautious but hopeful comments at the close of 2010.

Even with the gains now being reported, there remains significant concern in regard to inflation and whether the Federal Reserve will act too slowly to avoid a repeat of the “boom/bust” of 2008, leaving rates too low, too long.

Institute for Supply Management Research Director Brian Long reports this week in the Business Journal that growth is “accelerating,” and he notes “21 months of positive reports since the recovery began in 2009.” Long’s most recent survey of purchasing managers reflects recovery in the office furniture industry and auto sales expansion.

“Lest there be any doubt, the industrial sector of the U.S. economy is leading the nation out of the recession,” Long said, also expecting March statistics will build on the current platforms.

Business Journal reporting includes double-digit growth for chemical supplier Haviland Enterprises, and like many regional businesses, its expansion into new markets and product lines.

Growth in alternative energies is presented by Fortu PowerCell’s announcement that it will break ground this year on a $623 million advanced battery plant in Muskegon. The company is a Swiss-German subsidiary of Fortu Holding AG of Basel, Switzerland, which is commercializing a new, rechargeable lithium battery technology based on a proprietary, nonflammable electrolyte. The large battery cells will be used in electric and hybrid-electric vehicles, and in large, stationary electrical storage systems.

Perhaps the most welcome news in a decade came this week from Autodie LLC, one-time king of automotive suppliers, which plans a $24 million improvement to the plant. Even better news is that German/American automaker MBtech, a subsidiary of DaimlerChrylser, now owns the company and engineering is back as a job category.

These welcome examples of regained ground and growth, however, are made more perilous as the Fed continues a monetary policy that may already be the stumbling block. While business owners and consumers alike are very aware of escalating oil costs, industries are reporting to Long that inflation is at the door, in continued high steel prices and commodities now 40 percent higher in price than just 10 months ago.

Long reported that his survey participants were far more optimistic about growth potential and that sales continue to be strong. Concern is evident — especially for smaller businesses that cannot absorb big price hikes — that industrial inflation is already at work.

Late last week, various members of the Fed were reported to be steadfast in holding to the current policy, according to news reports of their remarks as speakers in various locations. Fed members apparently have a threshold of 2.0 percent inflation and suggest the economy is still sluggish. Still other Fed members appear ready to open discussion.

Such action must come sooner than later.

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