To: RetiredNow who wrote (219945 ) 2/21/2005 2:31:00 PM From: tejek Respond to of 1573849 Coming Week: Price Pressures By Gregg Greenberg TheStreet.com Staff Reporter 2/19/2005 12:00 PM EST Inflation will be on traders' minds when the Wall Street hordes get back from a three-day weekend on Tuesday. A higher-than-expected core producer price index for January spooked the markets Friday, keeping a lid on stocks and sending the yield on the benchmark 10-year Treasury note to 4.27% from 4.18%. The PPI rose 0.3%, but excluding food and energy, prices jumped 0.8%, making it the biggest gain in six years. The consensus forecast was for a 0.3% increase in the producer price index and a 0.2% gain for the core rate. Traders say the core PPI surprise raises the significance of the consumer price index, which will be released before the market opens next Wednesday. Economists are looking for the CPI to be up 0.2% vs. a drop of 0.1% the prior month. Consensus estimates for the core CPI, which excludes food and energy, are also at 0.2%, the same as the prior period. "Inflation is a lot worse than people realize and we saw that in the PPI numbers," says Richard Williams, director of research at Garban Institutional Equities. "Next week we see the CPI, which is often distorted because of assumptions about home ownership. But it will eventually catch up to the PPI." The PPI shock took on additional importance because it came on the heels of Alan Greenspan's latest congressional testimony. While Greenspan said prices were largely in check, he warned that the weak dollar, high oil prices and flagging productivity could change that in the future. Earlier this month, the central bank raised interest rates a quarter percentage point for the sixth time since late June, taking the federal funds rate up to 2.5%. The minutes from the Federal Open Market Committee's last meeting should add another piece to the puzzle when they are released on Wednesday afternoon. thestreet.com