*NEWS*U.S. DATA SPARKS INFLATION WORRIES

[Anonymous]

US data sparks inflation worries

Wholesale prices in the US rose at the fastest rate in more
than six years in January, according to government data.

New Figures show the Labor Department producer price index (PPI) rose by 0.3%-in line with forecasts.

But core producer prices,which exclude Food and energy costs, surged by
0.8%, the biggest rise since December 1998, increasing inflationary concerns.

In contrast, the University of Michigan barometer of US retail consumer
confidence showed a slight dip.

The university’s index of consumer spending fell to 94.2 in early February
from 95.5 in January, which could indicate a fall in retail spending by the US
public.

The mixed set of data on Friday led to volatile early Wall Street trade, as
the Dow Jones, Standard and Poor’s 500, and Nasdaq swung between positive and
negative territory.

‘Measured rises’

The economic figures come on the back of increased fears that the Federal
Reserve chairman may be about to raise interest rates in order to stifle any
inflationary pressures.

The Fed has been raising interest rates at a gradual pace since June 2004, in
an attempt to make sure inflation does not get out of control.

The concern is that traders might interpret this big jump in the core PPI as an impetus for the Fed to be more aggressive than a measured move in moving rates Paul Cherney, Standard and Poor’s

Mr Greenspan told Congress this week that the central bank was on guard
against the possibility that a rebounding economy could trigger stronger
inflation pressures.

“The PPI would argue for Greenspan to continue to raise rates at a measured
pace,” said Joe Quinlan, chief market stategist at Bank of America Capital
Management.

“But this Michigan survey tells you that the consumer might be downshifting a
little bit in terms of their confidence and their spending; this could be an
indication of that.”

Year-on-year surge

Consumer spending accounts for 66% of US economic activity and is viewed as a
gauge of the health of the economy, which is why the Michigan data is closely
observed.

However on Friday, it was overshadowed by the core PPI core figure, which
surged 2.7% during the past 12 months, the biggest year-on-year gain in nine
years.

“The concern is that traders might interpret this big jump in the core PPI as
an impetus for the Fed to be more aggressive than a measured move in moving
rates,” said Paul Cherney, chief market analyst at Standard & Poor’s.

But Ian Shepherdson, chief US economist at High Frequency Economics, said the
PPI report was”much less alarming” than at first glance.

One-time increases in alcohol and tobacco prices, which “are no indication of
broad PPI pressure”,were responsible for the increase,he said.

Prices for autos and trucks also jumped in January,but Shepherdson said”it
is a good bet these increases won’t stick”.

[Author]

February 21, 2005 at 9:59 AM