EYE ON
AMERICA Look for another Fed
hike By Peter Morici
On
Tuesday, the US Labor Department reported that
country's Producer Price Index increased 0.9% in
April, thanks to surging energy prices. The
consensus forecast was 0.8%, and my forecast
published by Reuters was 1.0%.
Core
producer prices - producer prices less food and
energy - rose 0.1% in April after rising 0.1% in
March. The consensus forecast was 0.2%, and my
forecast was 0.2%.
US gasoline prices
surged last month. The average retail price of
gasoline in April was US$2.79 per gallon (73.7
cents per liter), up from $2.47 a gallon in March.
By this Monday, it hit $2.99. Gasoline prices are
likely to go higher through the spring and
summer driving season, and
significantly burden economic growth.
Diesel prices are surging too. Diesel
prices rose from $2.56 per gallon in March to
$2.73 in April, and reached $2.92 (77.1 cents a
liter) on Monday.
Wholesale prices for
finished consumer goods outside the energy sector
rose a modest 0.1% in April after rising only 0.2%
in March and falling 0.8% in February. These
prices are up only 0.6% over the past 12 months.
Productivity growth in the US remains
solid. These gains have permitted producers of
non-energy products to absorb higher fuel prices
and wage increases without pushing up prices for
other finished goods, and still to enjoy increased
profits.
The bottom line is that wholesale
price inflation, outside the energy sector,
remains in check in the United States, and the
outlook for core consumer prices remains
favorable.
US consumer price data, due
this week, which cover a broader range of goods
and services, will further illuminate the
inflation picture and the Federal Reserve's
options. Equally important will be May jobs growth
and wage data. April jobs growth was low in the US
but wage increases were strong. Both figures were
likely aberrations, and the May figures should
reflect a regression to the mean.
The
broader indices of inflation will be driven higher
by surging petroleum prices. The Fed will want to
make sure inflation is safely inside the bottle
and the cork is firmly secured. On the basis of
the data we have to date, look for the Fed to push
the Federal Funds rate to 5.25%.
Peter Morici is a professor at
the University of Maryland's Robert H Smith School
of Business, former chief economist at the US
International Trade Commission, and a commentator
on economic and political issues.
(Copyright 2006 Peter Morici. Used
with permission.)
