Commodity Price Surge Weighing on U.S. Economy, McCormick Says
The surge in commodity prices poses an additional burden to a U.S. economy already pressured by the housing slump and credit-market turmoil, the Treasury Department's top international official said.
“The U.S. economy is facing a very challenging time,'' Treasury Undersecretary David McCormick said in an interview in Chennai, India, today. “There are impacts far beyond energy prices because the underlying cost of energy affects other prices.''
Gasoline prices have climbed about 11 percent this year alone, to $3.51 a gallon this week, while food costs have risen 4.4 percent in the past year. Economists surveyed by Bloomberg News this month anticipated that consumer spending, which accounts for more than two-thirds of the economy, will rise at the weakest pace since 1991 in the first half of this year.
McCormick indicated that the increase in energy prices is unlikely to abate because it's mostly driven by global demand, rather than investor speculation. Besides oil, the prices of rice, corn, wheat and soybeans have also reached record highs this year.
“If you look at the underlying causes'' of higher energy costs, the “majority of this appears to be driven by supply and demand,'' McCormick said in Chennai, where he spoke at a Confederation of Indian Industry event. Commodity price gains “are just an added pressure on our country,'' he added http://pay-day-home.com.
The housing industry remains in “very difficult circumstances,'' and “we continue to see home prices decline,'' McCormick said. An industry report yesterday showed that sales of existing homes declined in March for the seventh time in eight months.
Credit Markets
In credit markets, there are still “some challenges with liquidity,'' the Treasury official said.
McCormick declined to label the U.S. economic slowdown as a recession and reiterated the administration's view that the fiscal stimulus package approved earlier this year will help spur a return to job gains. Payrolls have fallen for three straight months.
In his remarks at the luncheon, McCormick said Indian policy makers need to ensure that the nation's “physical infrastructure grows by enough to support the country's expanding economy.''
“Legal and judicial reforms are an important part of improving the investment environment,'' he said. “As potential investors know, resolving commercial disputes in India can be a long and difficult process.''
He urged officials to overhaul the judiciary “to render dispute resolution more effective.''
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