(Agencies)
Updated: 2008-03-27 23:58

US exports have been helped by the sinking value of the US dollar, which makes US goods less expensive to foreign buyers. The US dollar recently plunged to record lows against the euro and has fallen sharply against the Japanese yen.

The drooping dollar can aggravate inflation pressures.

An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9 percent in the fourth quarter. That was not as high as previously estimated but marked a big pickup from the third quarter's 1.8 percent pace.

Another gauge showed that "core" prices — excluding food and energy — grew at a rate of 2.5 percent at the end of last year. That was down from a previous estimate of a 2.7 percent pace but was up from the prior quarter's 2 percent growth rate.

The new core inflation figure is above the Fed's comfort zone — the upper bound of which is a 2 percent inflation rate.

Although the Fed's No. 1 job is trying to save the economy from a deep and prolonged recession, it is also keeping close tabs on inflation and soaring energy prices.

Oil prices are topping $105 a barrel. Gasoline prices have marched higher, too. High energy prices can spread inflation if lots of companies boost prices charged to customers for a wide range of goods and services. High energy prices also can be a drag on overall economic growth by crimping consumer spending.

The combination of slowing economic growth and rising inflation make the Fed's job more difficult. It also has raised fears the country may be headed for a bout of stagflation, a scenario the US hasn't experienced since the 1970s. Fed Chairman Ben Bernanke, however, has said that's not the case.

The Fed's rate reductions along with the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses should help revive economic growth in the second half of this year, economists said.

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