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To: Alohal who wrote (124712)	5/14/1999 12:14:00 PM
From: Mohan Marette	Respond to of 176387

Good question Alohal,let's us ask the 'Dismal Scientist'- See if you can find answer here if not you can send him an email for clarification. dismal.com

To: Alohal who wrote (124712)	5/14/1999 12:20:00 PM
From: Mohan Marette	Read Replies (2) \| Respond to of 176387

Business Implications of of today's CPI number. Alohal: Here is what the 'dismal guy' has to say about it. I guess I can live with a 2% inflation rate is for the remainder of the year with 3.5-4% GDP growth and no wage inflation,couldn't have asked for more is what I say. ======================= "The CPI experienced strong growth in April, posting a 0.7% increase. Consumer prices are up 2.3% over the past year. Core CPI inflation remains on trend. The core CPI, which excludes the “high noise” food and energy components, increased 0.4%. Core prices are up 2.2% over the past twelve months. Reflecting the rise in oil prices, transportation costs rose 2.4%. Also reflecting increasing petroleum prices, energy prices are up a whopping 6.5% for the month. Apparel costs posted a large price increase in April. The 1.5% rise in apparel prices is coming on the heels of persistent declines in apparel prices. Food and education and communication prices are largely unchanged. Analysis Oil prices continue to be the number one story on the inflation front. Approximately half of the strong 0.7% increase in the CPI is attributable to rising gasoline prices. Likewise, overall energy prices are up over 6% and petroleum-based energy prices are up 14%. The impact of rising oil prices is also evident in transportation costs, which are up 2.4% for the month. A simple econometric model suggests that the CPI inflation rate will eventually rise by over one percentage point if the price of oil remains at its present level, all else being equal; it is already up over 50 basis points since oil prices began to rise. On a year-to-year basis, CPI inflation is over 2% for the first time since October 1997. Inflationary pressures remain quite mild, however. To date, the strong dollar and unexpectedly high productivity gains are keeping inflation well in check. And oil prices notwithstanding, only minor increases in inflation are in the pipeline; inflationary expectations are low, capacity utilization rates are falling, and the latest NAPM survey suggests that manufacturing prices will remain subdued going forward. Medical care inflation is ticking up somewhat, posting a 0.4% increase for the month. Medical care inflation is up 3.5% for the year. Current medical care inflation is consistent with historical trends; a good rule of thumb is that medical care inflation is approximately half again to double that of overall inflation. Apparel prices, after falling for 7 of the previous 9 months rebounded strongly in April, rising 1.5%. The recessed international economy had previously been keeping apparel prices low. Although petroleum prices are not expected to rise much further (oil prices are expected to slip back to approximately $15 per barrel) inflationary pressures will nonetheless continue to mount over the next several months. The U.S. economy is increasingly labor constrained; inflationary pressures originating in labor markets will still persist. Likewise, a stabilizing global economy will prevent the dollar from appreciating much more. As such, a further acceleration in inflation is forecasted. The Dismal Scientist expects CPI inflation to average over 2% through the summer months.