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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Cactus Jack who wrote (40197)	8/15/2001 8:10:31 AM
From: stockman_scott	Respond to of 65232

CPI Seen Flat in July After Fall in Oil Wednesday August 15, 12:35 am Eastern Time By Marjorie Olster NEW YORK (Reuters) - The U.S. Consumer Price Index for July is expected to provide more evidence that inflation pressures are quickly receding with domestic growth stalled and global economic weakness depressing energy prices. Economists polled by Reuters forecast on average no change last month in the overall CPI, the nation's broadest gauge of inflation. The report is due out on Thursday at 8:30 a.m. In June, the CPI rose 0.2 percent for the month and was up 3.2 percent compared with a year earlier. Eleven of the 21 economists polled predicted the July CPI would be negative due largely to a big drop in oil prices. That would be a rare event -- overall CPI has fallen only once in the past 15 years in April 2000. The core CPI rate, which excludes volatile food and energy prices, is expected to have risen 0.2 percent in July following an 0.3 percent gain in June. The core was up 2.7 percent year over year in June. ``Commodities are under downward pressure from a weaker economy and if the global slowdown worsens, it will prevent any quick commodity reinflation,'' said Peter Kretzmer, senior economist at Bank of America in New York. U.S. crude oil prices fell about 20 percent from mid-May to mid-July as a global economic slowdown depressed demand. Part of that steep drop will be reflected in the July CPI. ``A big decline in oil prices is expected to be the largest factor accounting for a weak CPI reading in July,'' said Paul Kasriel, chief domestic economist at Northern Trust Co. in Chicago. ``But the behavior of energy prices would suggest July is going to be an isolated event.'' Oil prices have reversed course recently which may mean the August CPI will not be quite as benign as July's. Since mid-July, production cuts by major oil producers sent prices back up about 14 percent. ALL-CLEAR SIGNAL FOR FED Retreating inflation pressures give an all-clear sign to the Federal Reserve if it wants to lower interest rates further to pump some life into the moribund U.S. economy. The Fed has already lowered rates six times this year by a dramatic 2.75 percentage points in a campaign to keep the economy from slipping into a recession. If central bankers saw a threat of inflation rising substantially, they would be hesitant to cut rates much further, analysts said. The Fed is widely expected to lower rates again this month and there is a growing feeling in U.S. markets that more cuts may be needed after that. ``It's clear the Fed is not concerned about inflation,'' said Kasriel. The consensus on Wall Street is that by year end, CPI will have risen 2.9 percent, down from 3.4 percent in 2000. Wall Street investment bank Goldman Sachs last week said it was revising its U.S. economic outlook because it now expected slower growth and ``somewhat more disinflation'' in 2002 as well as deeper Fed rate cuts. Goldman said the July Producer Price Index (PPI), a measure of wholesale inflation, offered more evidence of disinflation. The PPI, released last week, fell 0.9 percent overall for finished goods while the core rate rose 0.2 percent. A 0.4 percent decline in the PPI's core intermediate goods component suggested further disinflation in the pipeline, Goldman said. Another sign of falling inflation pressure was the 1.6 percent drop in the prices of U.S. imports in July. The declines were broad based, extending beyond energy costs. SERVICES AND HOUSING PRICES FIRM Though goods and commodities prices have lost ground in the year-long slowdown, economists say the prices of services and housing remain firm. Once the massive dose of fiscal and economic stimulus turns the economy around, these will be the areas to watch for emerging inflation pressures. Both the services and housing components of the CPI registered 4.5 percent year-over-year gains in June, much higher than the overall CPI rate. ``It will be interesting to see if service prices in the CPI begin to show a lot of deceleration. I don't expect them to,'' said Kretzmer. ``It is rare for service prices in our economy to be falling which is why a negative monthly number is very rare.'' ________________________________ jpgill: Hope the family BBQ went well...I spent a long weekend up in Holland, MI with a bunch of relatives. On Saturday we had one of the most spectacular days for a sail on Lake Michigan -- I went with my father, a couple of uncles and my grandfather (3 generations out on the water <G>). We had lots of fun. Best Regards, Scott