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Although the recession is still strong, the surprising payrolls figure hinted that the worst is behind us, even in the job market. With rising commodity prices and improving consumer sentiment, inflation might be around the corner. Will Bernanke change a direction?

Last week’s Non-Farm Payrolls were much better than expected – they fell by 345,000 jobs, much better than expectations that were above 500K, and the best result in many months. It seems that the big layoffs are already behind us.

Don’t get me wrong, the American job market isn’t in a hiring mode. Jobs still fell, and the unemployment rate rose to 9.4%. The cliff that the economy fell off turned into a grassy hill, with hope ahead.

In February I wrote that inflation is becoming irrelevant in the forex market. With oil above $70, things look different now. Oil prices have doubled since hitting the bottom. Despite being half the price at the peak, $147 a barrel, the price hike in oil impacts prices everywhere.

Together with the price of oil, other commodity prices will rise. This still isn’t seen in CPI and PPI figures, but the commodity prices don’t dwell only in the stock exchange – they affect real people as well.

Another interesting thing to watch is consumer sentiment. American consumers show more optimism lately. This can be seen in the highly regarded report by the University of Michigan, which is getting close to 70 points. A higher consumer sentiment means more consumption, which puts pressure on prices.

When will Bernanke raise the interest rate?

A maximum rate of 0.25%, practically 0%, cannot last forever. While official statements by the Federal Reserve say that this low rate will stay for a long time, it won’t last forever.

Maybe I’m writing this too early, but I do believe that lifting the interest rate will happen sooner than later. It won’t happen in Europe, which suffers from deflation, and not in Britain, Japan or Switzerland. Out of all the major currencies, the dollar seems the first currency to have its interest rate bounce from the bottom.

When will it happen?

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