Inflation Likely To Be A No-show When June Producer Price Index Appears
Inflation Likely to Be a No-Show for June: U.S. Economy Preview
Washington, July 5 (Bloomberg) -- One of the remarkable things about the
U.S. economy these days is its ability to grow and create jobs while
generating almost no inflation, a quality that should show up in this
week's report on producer prices.
With the dollar rising and food prices falling, economists expect the
June producer price index -- which tracks the prices paid to factories
and farmers for finished goods -- to be pretty benign. Part of the
credit goes to economic turmoil in Asia, where falling currencies have
led to falling prices for goods shipped to the U.S. That, in turn,
forces U.S. companies to hold prices steady, or cut them, in order to
compete. ''Clearly the international situation is helping to contain
inflation, despite the labor shortage, and the PPI will show that,''
said Patrick Flaherty, associate economist at Fleet Financial Group in
Boston.
Economists are looking for the PPI for last month to show no change
after rising 0.2 percent in both April and May. Stripping out volatile
food and energy prices, the core PPI rate is expected to show a 0.1
percent increase for June. The report is to be released Friday.
No increase in the PPI for June would fit right in with the pattern of
the last year and a half. In 13 of the 17 months since January 1997,
producer prices have fallen or been unchanged. Consumer prices, which
also cover services, have risen so far this year at about the same pace
as 1997. And last year was the best showing for U.S. consumer price
inflation in a decade.
Complacent Fed
That's a big reason why Federal Reserve policymakers have been
complacent in the face of a rapidly expanding economy and an
unemployment rate that's holding close to a three-decade low. Fed
policymakers met last week and decided to the overnight bank lending
rate steady -- as they have each time they've met over the last 15
months. They meet again Aug. 18.
Many economists are surprised that wage gains or price increases haven't
accelerated. The economy grew at a 5.4 percent annual rate in the first
three months of the year -- the second fastest pace in a decade. And
unemployment has stayed below 5 percent for the last year. In June,
though, workers' average hourly earnings rose just 0.1 percent, a
reassuring sign for U.S. central bankers. ''For Alan Greenspan, the most
important number here is the hourly earnings, which was up 0.1 percent,
the most benign number we've seen in a number of months,'' said Raymond
Worseck, chief economist at A.G. Edwards & Sons Inc. in St. Louis. ''As
long as inflation or the things that contribute to inflation are under
control, he doesn't care if the economy grows at 10 percent.''
Cheap Cantaloupes
There are few signs the inflation picture will change much any time
soon. The dollar hasn't retreated from its gains against the world's
major currencies. So far this year, the dollar has risen about 7 percent
against the Japanese yen alone.
What's more, consider what's happening to prices for food. U.S. farm
prices dropped 1.9 percent in June prices declined for cantaloupes,
lettuce and corn, according to the U.S. Agriculture Department. The
government's gauge of prices farmers receive for their crops and
livestock also showed prices were 5.6 percent lower compared with June
of last year. ''Food price pressures should be modest or non-existent in
the PPI report,'' said William Sullivan, economist at Dean Witter
Securities in New York. ''There's tremendous competition at the
wholesale stage of the economy.''
Prescription drugs are another reason economists expect the PPI report
to show inflation stayed in hiding last month. In May, a huge jump in a
tiny category of pharmaceuticals so skewed the PPI that economists
viewed the report as a one-time fluke.
An almost 600 percent increase in the wholesale cost of generic ''minor
tranquilizers'' pushed the overall index up 0.2 percent. The boost the
PPI received from that category should reverse itself in June, keeping
overall price gains in check, Sullivan said.
This Week Date Time Period Indicator BN Survey Prior 7/6 10:00 May
Housing Completions 1.493M 1.53M 7/8 8:30 May Wholesale Inventories 0.3%
-0.6% 7/8 8:30 May Wholesale Sales 0.4% 0.1% 7/8 3:00 May Consumer
Credit $3.8B $5.5B 7/9 8:30 7/4 Initial Jobless Claims -- 390K 7/10 8:30
June PPI Ex-food & energy 0.1% 0.2% 7/10 8:30 June Producer Price Index
0.0% 0.2%
Treasury, Federal Reserve Events
Monday, Deputy Treasury Secretary Lawrence Summers speaks at 10 a.m.
Washington time on the American perspective on foreign compliance with
the Year 2000 computer issue at Foley Square Courthouse in New York.
Tuesday, Treasury Secretary Robert Rubin speaks at 9:15 a.m. Washington
time to the Interagency Committee on Women in Federal Law Enforcement
Training conference at the Grand Hyatt Hotel.
Wednesday, Summers participates at noon Washington time on a global
conference call on the ''Politics of Markets Without Borders'' sponsored
by Global 24. Bank of France Governor Jean- Claude Trichet and Bear
Stearns & Co. Chairman Alan Greenberg will also participate.
Friday, Federal Reserve Chairman Alan Greenspan speaks at noon
Washington time on technology and modernization to the Charlotte Chamber
at the Marriott City Center in Charlotte, North Carolina.
Also Friday, Rubin leaves for four-nation tour of Africa to push the
Clinton administration's new policy of economic reform in exchange for
aid.
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