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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (26946)	4/5/2005 6:49:37 PM
From: RealMuLan	Read Replies (1) \| Respond to of 116555

Fed frets as consumer prices start to edge up By Christopher Swann Published: April 5 2005 18:33 \| Last updated: April 5 2005 18:33 Four months ago Ron Bullock, president of Bison Gear Engineering in Illinois, had reluctantly accepted that he could not pass on the costs of higher energy prices to his customers. Now he feels more hopeful. “For the first time in ages, we no longer feel that demand will collapse if we put up prices,” he says. “The market is much more solid.” Mr Bullock may be pleased, but price increases are causing trepidation at the Federal Reserve, which recently expressed concern that inflationary pressures may be building up in the US. For two years the economy has staved off three menaces: soaring commodity prices, a weakening dollar and an improving jobs market. Economists fear that these forces may start to gain the upper hand. If so, the Fed may quicken its monetary tightening. Why have companies found it so hard, until recently, to raise prices, and what has changed? Part of the explanation, economists argue, is that companies were fearful that consumers would not tolerate price increases. “At the early stages of a recovery, when consumers were more worried about their jobs, they appeared to be slapping down anyone who tried to put up prices,” says Alan Ruskin, director of research at 4Cast, the consultancy. “Now they seem to be feeling more secure and slightly less price-sensitive.” Fearful of being rebuffed by consumers, most companies absorbed extra costs on their margins which were expanding anyway, due to rising productivity. This helps explain why a 65 per cent increase in raw material costs over the past three years has translated into just a 19 per cent rise in intermediate goods costs and a 5.4 per cent rise in underlying inflation since 2003. news.ft.com