Inflation

Bill Gates is bullish on inflation. He's putting tens of millions into the Western Asset-Claymore Inflation-Linked Securities & Income Fund, which rises with consumer prices over the long term. The fund is managed by Legg Mason's Western Asset unit in Pasadena, Calif. Through his Cascade Investment vehicle, Gates has been buying the inflation fund (ticker WIA) at least since June, when he first declared ownership of more than 10 percent of its shares. In mid-June he owned 2.9 million shares worth about $36 million.

Even Treasury Inflation Protection Securities - pretty tame as investments go - haven't escaped market ugliness. But now that they've been beaten down, they look attractive for long-term investors. As their name implies, TIPS are government bonds that pay guaranteed interest plus extra principal, depending on what happens to the Consumer Price Index. Only a few months ago, everybody wanted inflation protection. (Remember $140 oil?) TIPS were so expensive their yield nearly disappeared.

WASHINGTON - The job of the Federal Reserve and government policymakers got considerably more complicated yesterday when the Labor Department reported that consumer inflation is running at an annual rate of 5.6 percent, its highest level in 17 years. The Federal Reserve has been worried about inflation, or the rise in prices across the economy, for months. But it has left its benchmark federal funds rate at 2.0 percent since April, betting that the inflation pressures will ease when energy prices fall back.

To understand the intense economic pressures sweeping the globe, you could earn a master's in business administration or convene a focus group of economists and Fortune 500 CEOs. Or you could look at McCormick & Co. The spice purveyor illustrates just about every kind of contemporary economic trauma: soaring crop prices, expensive energy, depressed consumers, inflation, tighter profit margins, layoffs, gyrating currency values and nutty credit markets. The Sparks-based company has coped very well, partly by raising prices and contributing to the nation's 4 percent-plus inflation rate.

Reading recent headlines, it might be easy to conclude that the economy is in a death spiral. But in Maryland most people still have their jobs and are likely to keep them. Buttressed by substantial federal government spending, the state's unemployment rate is likely to remain solidly below the national average, and analysts expect Marylanders' share of the pain from the economic turmoil to be proportionately moderate. Stormy weather is ahead, but every economic decline has within it the seeds of recovery.

Almost everything that consumers spent money on last month - including food, electricity and gasoline - took a bigger piece of their paychecks. Inflation in June rose at the fastest rate in 17 years, the government said yesterday, a day after the chairman of the Federal Reserve warned that inflation poses a significant risk to the nation's economic outlook. The Consumer Price Index, which measures the prices of a batch of common household products, rose 1.1 percent in June, the Labor Department said, capping a year in which inflation has surged to levels considered by some a threat to the stability of the economy.

Three cheers for inflation, especially this summer. Believe it or not, there is a reason to say it: Older Americans have a floor under their income because Social Security retirement benefits are adjusted for inflation every year. Many say that last year's inflation adjustment was small, compared with this year's rate. Indeed, recipients received a 2.3 percent raise, which gave them each about $25 a month on average. Inflation, of late, has been much higher. No wonder seniors feel squeezed.

Caught between inflationary pressures and a weakening economy, the Federal Reserve's policymakers voted yesterday to deal primarily with the weakening economy by keeping interest rates at their present level. The decision to hold at 2 percent the key short-term federal funds rate - which affects what consumers pay for mortgages, car loans and other credit - brought to a halt a stream of rate cuts since August, reductions that brought the fed funds rate to its lowest level since November 2004.

WASHINGTON - Soaring energy prices punished ordinary Americans in May, triggering the highest run-up in inflation in six months and exceeding the expectations of economic forecasters, the government reported yesterday. Consumer prices rose 0.6 percent, as measured by the Labor Department's Consumer-Price Index. Prices have risen by 4.2 percent, slightly above the 4.1 percent rise in prices for last year. Those annual numbers reflect the rise in all prices across the economy, and don't necessarily capture the pain that many Americans are feeling at the cash register.

WASHINGTON - After a couple of months of calm, nervousness returned to financial markets yesterday. Stocks slumped after the government reported that a key indicator of inflation jumped sharply in April and the Federal Reserve's second-in-charge signaled that inflation remains a threat, making further interest rate cuts unlikely. Adding to the gloom, oil prices closed above $129 a barrel for the first time - ahead of this weekend's start of the summer driving season. The day's events stood in contrast to the optimistic picture painted by the Bush administration only Monday, when Treasury Secretary Henry M. Paulson Jr. told the president that the worst seemed over for the slumping U.S. economy.