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To: UnBelievable who wrote (4936)	6/14/2001 9:00:15 AM
From: UnBelievable	Respond to of 209892

: May PPI Shows Pipeline Inflation Is Waning ======================================================= May Producer Price Index !Surprise:Yes ! Key Numbers: May Apr ! ! PPI Index: +0.1% +0.3% !Trend:Not ! Core Index: +0.2% +0.2% !Inflationary ! Intermediate:+0.1% -0.2% !Consensus: ! !Overall:+0.3%! ======================================================= By Joseph Rebello Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--U.S. inflation at the wholesale level moderated in May amid a drop in prices of food and automobiles, suggesting the Federal Reserve enjoys enough freedom to cut interest rates at least once more to boost economic growth. The Producer Price Index for finished goods rose 0.1% in May, settling from a 0.3% rate in April, the Labor Department said Thursday. The moderation partly reflected the first drop in food prices in five months. The "core" index, considered more a stable gauge of inflation because it excludes food and energy items, rose just 0.2%. The tame inflation surprised Wall Street, which expected a 0.2% increase in the core index and a 0.3% increase in the overall index. But it should have little effect on stocks and bonds Thursday, because investors widely expect the Fed to cut interest rates again this month to rally an economy the central bank regards as too weak. The Fed has cut its key federal funds rate by 2.5 percentage points to a seven-year low of 4% this year to stave off what it fears could be the country's first recession in a decade. The cuts halted the slide of U.S. stock prices, and boosted home-construction activity. But it has had little effect on the overall economy, which grew just 1.3% in the first quarter and is expected to have grown even more slowly in the second. "We are in a period where the economy is growing quite slowly," Fed Vice Chairman Roger Ferguson told U.S. lawmakers Wednesday. The "drumbeat" of layoff announcements recently, he said, has enlarged the risk that consumers could be frightened into spending less, causing the economic slowdown to deepen. "The risks...are to the downside," Ferguson said. Ferguson and other policymakers have said, moreover, that they see little risk that inflation could accelerate as interest rates decline. "I don't think inflation is going to be a challege in the short to intermediate term," Ferguson said Wednesday. Investors, as a result, widely expect the Fed to cut the funds rate at least once more. Futures contracts show investors expect the funds rate to drop to 3.75% when the Fed's top policymakers next meet on June 26 and June 27. The Labor Department attributed the increase in the overall prices of finished goods partly to energy prices, which grew by 0.2% after a 0.1% increase in April. Gasoline prices rose 0.4% while prices of residential electricity rose 0.7%. Heating-oil prices rose 8% in the biggest increase since September of 2000. The government said wholesale food prices dropped for the first time since December, falling 0.4%. Prices of fresh eggs fell 21.4%, the biggest drop in more than a year. Prices of shellfish, pork and beef also registered the biggest drops in nearly a year. But prices of dairy products rose 4.6%, the biggest-ever increase. Automobile prices declined, dropping 0.1% after a 0.2% increase in April. Wholesale computer prices declined by 1% after rising 1.5% in April. Tobacco prices rose after stagnating for two months, climbing 4.9%. Cigarette prices rose 5.6%, the biggest increase in four months. In year-on-year terms, moreover, the May producer price report suggested pipeline inflationary pressures remain in check. Overall prices rose 3.8% in the 12 months through April, well below the 10-year peak of 4.8% reached in January. Core prices rose 1.6% in year-on-year terms. The outlook for inflation further up the production pipeline was mixed. Prices of crude, or unprocessed goods, fell 2.3% after rising 0.9% in April. Prices of intermediate goods rose 0.1% after falling 0.2% in April. -By Joseph Rebello; 202-862-9279; joseph.rebello@dowjones.com -Elizabeth Price and Phil McCarty contributed to this article (END) DOW JONES NEWS 06-14-01 08:31 AM