9/15/2005

Inflation from Katrina

The economic effects of Hurricane Katrina are still showing up. As the total displacement from the storm becomes understood, with 68,000 unemployment claims so far which will likely be absorbed by the inviting states of the refugees, the aggregate unemployment effect on the economy should be minor. A recent article in The Wall Street Journal highlights the current economic condition resulting from Katrina’s inflation after math. The real effects to inflation will be coming from the increasing energy costs that were taking effect before the storm hit, and which now are becoming realized with inflation hitting 3.6% from a year ago, which I think will touch the brakes of an already slowing economy and will pause the Feds rising of the short-term federal-funds rate. As we transition in to the winter months, we will likely see even more price increases in energy, bringing manufacturing and the economy to a slight slow down and possibly bringing inflation to the mid four percentile. On a more human note, hopefully this disaster has made it clear how important it is to hedge our selves against a local micro economic shut down, and good luck to the people that stay and rebuild.

3 comments:

alex said...

So are you trying to say that we ahould have an economic mechanism which can hedge the risks brought about by natural disasters?

Dan said...

I think that as a country, we must hedge with the respect to energy costs. The problem is that we should have been doing this years ago with research and technological advances. At least that is what this Monday morning quarterback says.

Dr. Tufte said...

-1 on Frank's post for spelling errors.

I think Frank is on to something Alex. There's a huge amount of unhedged risk in the typical household.

Take the case of Katrina: many people lost both their homes and their jobs. How could they avoid this risk, say if there house is paid off? How about remortgaging it, and using the money to buy a property far away from where you work. That way you lose your job, but the bank loses its house.