Not stagflation, but growthflation

4 February 2011 By Ian Campbell

Oil and commodity prices risk spiking. The primary cause is global growth, with political unrest another upward influence. Data shows the U.S. economy is warming up. Stagflationary fears are off the mark: the global economy is awash with money, and rates need to shift up soon.

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Brent crude for March touched $103.37 on Feb. 3, the highest intraday price since September 2008.

Indonesia's central bank unexpectedly raised its benchmark interest rate by 25 basis points to 6.75 percent on Feb. 4. The bank said it expected real GDP growth of 6.4 percent in the first quarter of 2011.

The Reserve Bank of Australia, the central bank, raised its GDP growth forecast for 2011 to 4.25 percent from November's forecast of 3.75 percent and said the economy would grow at around 3.75 to 4.0 percent to June 2013.

The U.S. Institute for Supply Management said on Feb. 3 that the services sector grew in January at its fastest pace since August 2005. The ISM's index of nonmanufacturing activity rose to 59.4 in January from 57.1 in December. A reading above 50 indicates expansion. The new orders component rose to 64.9 from 61.4 in December. The prices paid component rose to 72.1 from 69.5.

On Feb. 2, the ISM reported that its manufacturing sector index rose to 60.8 in January, the highest figure since May 2004.

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