Inflation Concerns and the Fed

The Wall Street Journal Blog is pointing to some interesting Producer Price Index (PPIC) numbers that may mean good news in terms of inflation worries and whether or not the Fed will raise or even possibly lower interest rates at their next meeting.

Today’s larger-than-expected jump in the producer price index — up 0.6% in July and 4% from a year earlier — came largely from higher energy prices, pushing up some forecasts for the headline consumer price index. But the core PPI (excluding food and energy) gained just 0.1% in July and 2.3% from a year ago. Goldman Sachs economists said that means core CPI should rise by 0.19% for the month instead of their previous forecast of 0.23%. (They raised their forecast for headline CPI to 0.17%, from 0.13% earlier, due to higher energy prices.)

Relatively tame inflation data “would remove one impediment to Fed easing,” Deutsche Bank economists say in a research note. “Low inflation gives the Fed extra flexibility. In 1998 when the Fed cut rates, core CPI was running at 2.5%,” or 0.3 percentage point above the current year-over-year rate.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.