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To: gmccon who wrote (21711)	10/15/1998 1:35:00 PM
From: Giraffe	Respond to of 116791

Business Implications The latest Producer Price Index report from the Bureau of Labor Statistics indicates that inflation picked up in September. The PPI for finished goods increased by 0.3% from its August level, its largest increase in nearly a year. On a year-over year basis, prices for finished goods are down 0.9%. The core PPI which excludes food and energy goods rose 0.4%, its largest month-to-month increase since March. Despite the September increase, inflation remains subdued. The price index for intermediate materials declined 0.2% in September, while the index for crude materials for further processing fell 1.6%. The declines in crude and intermediate materials prices indicate that inflationary pressures are not building up in the production process. Furthermore, rising wages, which are the result of extremely tight labor markets, are not yet forcing up the price of goods. The continuing turmoil in Asia continues to play a role in keeping inflation in check. The strong U.S. dollar is causing import prices to fall, and is apparent in the prices for products ranging from computers to energy to chemicals. Analysis Producer price inflation remains tame despite an increase of 0.3% in finished goods prices in September from their August level. The core PPI, which excludes food and energy, rose by 0.4%. However, this increase does not signal the beginning of a sustained resurgence in inflation, since three quarters of the increase was the result of an increase in the prices of passenger cars and light trucks. The increase in the car and light truck indexes is most likely the result of problems with the seasonal adjustment factor. Nevertheless, the overall growth of the PPI remains well below its historical rate of growth. On a seasonally adjusted annualized basis, finished goods prices are declining at a 0.8% rate through September, just slightly above the 1.2% decline for all of 1997. There are currently no inflationary pressures building in the production pipeline. In September, prices for intermediate goods, such as the cloth to make a dress, declined 0.2%. Similarly, prices of crude materials, such as the cotton used to make the cloth, declined 1.6%. These declines bode well for the overall inflation picture over the next few months. The effects of the Asian economic crisis are offsetting any budding wage pressures. The Asian crisis is affecting a wide range of products. The low and falling prices for food, automobiles, energy, chemicals, and computers are the most apparent examples. The impact occurs through two conduits: (1) Asia's reduced demand for goods is causing excess supply to develop for many internationally traded items, and (2) Asia's weak currencies relative to the dollar make imports from these countries extremely cheap. The decline in import prices is affecting domestic producers not only by lowering the prices of imported goods, but also by pressuring domestic businesses to hold the line on their own pricing. The effects of Asia are most apparent in the commodities markets. As a result of weak demand from Asia, commodity prices have tumbled. The Bridge Commodity Research Bureau Index, which includes items such as petroleum, agricultural products, copper and gold, remains low by historical standards. With the Asian economic crisis looking like it will continue to deepen, the value of the dollar will remain strong and import prices will continue to fall. As a result, producer price growth will remain minimal throughout the remainder of the year and into next year. This should help keep consumer prices in check as well, since changes in producer prices often presage changes at the consumer level. Overall, the short-term inflation picture looks quite bright. www.dismal.com