|PPI Statistics Send Mixed Inflation Signals|
|Topic||Employment, Unemployment, and Inflation|
|Key Words||Inflation, Core Rate, and Producer Price Index|
|News Story||The Producer Price Index (PPI) measures what businesses charge each other for finished goods and services. During 2006, this measure rose in all but two months. In September, the Wholesale Price Index fell 1.3 percent. That figure sounds like good news on the inflation front, but it may only be masking other signs that inflation is still with us.
When the Commerce Department adjusts the Producer Price Index, omitting volatile energy and food prices, the Core Producer Price Index--an inflationary measure monitored closely by the Federal Reserve--actually rose by 0.6 percent in September, more than expected by most economists. The rise resulted mainly from higher automobile prices.
Despite the decline in the overall PPI, the increase in the core index raises a question: Has inflation begun to moderate or not. "This is a warning for economic forecasters not too get too sanguine," said SunTrust Banks' chief economist Gregory L. Miller. "Sometimes we get these indicators that remind us we're not in control."
At their last two policy meetings, the Fed has stopped a tight money policy by leaving its benchmark short-term federal funds rate at 5.25 percent. As the economy slowed, many forecasters have bee expecting the Fed to actually cut rates in the foreseeable future. The mixed signals that these latest PPI statistics give may dampen any expectations that the Fed will lower rates any time soon.
The minutes from the September 20 meeting of the Federal Open Market Committee--the group that makes monetary policy for the Fed--indicate remaining uncertainty over inflation. Members of the committee, including Fed chairman Ben S. Bernanke, have said they are still concerned about rising prices.
|Source||Jeremy Peters, "Wholesale Prices Fall, but Some Signs of Inflation Persist", The New York Times Online, October 18, 2006.|
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