To be sure, higher energy prices will temporarily push up the reported producer price index and the consumer price index. Indeed, prices of imports other than oil showed the largest decline in a year and a half last month. The money numbers both reinforce and reflect the many forces combating inflation today. Competitive pressures unleashed by deregulation and globalization are constraining the ability of many companies to hike prices. Productivity growth remains strong, and higher productivity allows the U.S. economy to run fast without triggering price increases.
Fiscal policy is restrictive with the government running a budget surplus.
The stock market is getting the economic slowdown it wished for, but the expected adjustment to a more moderate growth path has abruptly turned into a stomach-churning route. Despite all the talk about tech spending, blame surging oil prices and escalating tension in the Middle East for the falling stock market. The odds of a recession emerging sometime next year rather than a slowdown have risen slightly. Assuming the Middle East crisis abates, I'm much more optimistic about the economy's prospects. The economy may have lost some momentum, but productivity gains remain strong.