High energy cost may slow economic growth, raise inflation: Fed chairman

The growth of U.S. economy may slow down as energy prices continue a upward trend and push inflation higher, Federal Reserve Chairman Ben Bernanke said Thursday.

"A significant increase in energy prices can simultaneously slow economic growth while raising inflation," Bernanke spoke to the Economic Club of Chicago. A copy of his speech was distributed in Washington.

"In the short run, sharply higher energy prices create a rather different and, in some ways, a more difficult set of economic challenges," Bernanke said.

The U.S. economy has been "remarkably flexible" with regard to the continued spike of energy prices, he said.

The U.S. economy, which grew by 5.3 percent in the first quarter of this year, is expected by analysts to slow down in the second quarter.

He said that the cumulative increases in energy and commodity prices have been large enough that they could account for some of the recent pickup in core inflation.

For the first five months of this year, consumer prices were advancing at an annual rate of 5.2 percent, compared with the 3.4 percent gain for all of 2005, according to the government data.

Excluding volatile energy and food, core prices are rising at a 3.1 percent pace so far this year. That compares with a 2.2 percent increase in 2005, indicating that the price of lots of other goods and services are going up.

Economists believe that some of the rise in core prices reflect the spillover of high energy prices.

"As yet, these expectations measures have remained within the ranges in which they have fluctuated in recent years ... Nevertheless, these developments bear watching," the Fed chief said.

He also noted that "the U.S. economy is remarkably flexible and it seems to have absorbed the cost shocks of the past few years with only a few dislocations.

On June 5, Bernanke called recent increases in inflation unwelcome and pledged to be vigilant against the rising inflation in a speech prepared for an international monetary conference.

The remarks were seen by analysts as a sign that the U.S. Fed would continue to boost the short-term interest rate in its policy- making meeting to be held at the end of this month.

If so, it would be the central bank's 17th consecutive quarter- point hike since June 2004 and its key short-term interest rate would be raised to 5.25 percent form 5 percent at present.

Source: Xinhua