NYtimes on the PPI
Sylvia Nasar
<<In the 1970s, a sudden jump in the price of energy or some other important commodity inevitably signaled a nasty chain reaction that would send inflationary ripples through the whole economy.
These days, the prices of oil and other raw materials are climbing once again. But, so far, there are few signs of a ripple effect.
In August, producer prices, a gauge of wholesale price inflation, jumped five-tenths of a percent, the Labor Department reported Friday. It was the biggest monthly increase since last December. But the increase turned out to be largely confined to energy and food.
The core rate of wholesale price inflation actually fell slightly, by 0.1 percent, after staying put in July. Despite the jump in crude oil prices since the spring, producer prices other than for food and energy are just 1.3 percent higher than they were a year ago.
"There are no signs of inflation in the U.S. economy," said Bruce Steinberg, chief economist at Merrill Lynch. "Despite rapid growth and tight labor markets, there's no evidence of pricing pressure outside of oil."
The data doesn't necessarily mean the Federal Reserve will refrain from raising interest rates before the year is over, possibly at its next meeting Oct. 5. But normally hypersensitive bond investors -- on the lookout for anything that might give the Fed a reason to raise rates -- apparently interpreted the producer price data as a sign of benign inflation.
Bonds rallied, sending the yield on 30-year Treasuries to 6.04 percent from 6.09 percent. Stocks were mixed.
"On balance, this is a constructive piece of news from the Fed's perspective," said Richard Rippe, chief economist at Prudential Securities. "The Fed prefers not to see energy prices go up, but other prices, on which monetary policy has more direct impact, are still moderate."
Wholesale inflation has been running faster in the first eight months of this year compared with the same period last year, 2.3 percent versus zero. But the Labor Department attributed the entire increase to energy products. By contrast, the Labor Department noted in its release, the index for finished goods other than food and energy declined at a 0.4 percent rate over the past eight months after advancing 2.5 percent in 1998.
Although most economists agree that the best news on inflation is probably past, there was a reassuring absence of signs that pressures were building along the pipeline that connects the prices of raw materials with those of finished goods. Prices of so-called intermediate goods outside of food and energy -- everything from copper wire to paper and plywood -- rose two-tenths of a percent in August, about half the rate of the previous two months.
Certainly, the fact that Asia is emerging from its recession, Europe is beginning to grow faster, and Latin America isn't sinking as much as everyone feared after Brazil's currency tanked, means that the demand for many raw materials will increase, raising prices....>>
Rest is at: nytimes.com
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