Prices for Finished Goods Rise Less Than Expected
On Tuesday, the Labor Department released it’s numbers for the Producer Price Index(PPI) for the month of April. The price of finished goods rose .02%, while economists were predicting a .04% rise, a sharp drop off from the 1.1% increase in March.
While on the face of it the numbers look favorable, core PPI which excludes food and energy prices, rose .04% which was higher than expected. These numbers fuel the growing fear that inflation may be creeping into other sectors of the economy.
Food and energy prices had a relatively flat month after soaring in March. Much of that can be attributed to the general consensus that the Fed would ease it’s aggressive stance on interest rates, thus slowing the fall of the dollar in currency markets.
However, while food prices have stabilized somewhat, oil prices continue to hit record highs this month, with many analysts predicting it will surpass $150 a barrel before the end of the year. While economic growth is still sluggish and financial markets have yet to recover, there may be increased pressure on the Fed to raise rates in the near future.
If that were to happen and the dollar starts to rise, it could spur profit taking from commodities traders and send the price of oil falling toward the $100 a barrel mark. The other central banks of the world have resisted lowering rates in the face of slowing economic growth which has had a negative impact on the price of the dollar.
It will be a tough balancing act for the Fed and while economic growth remains their top priority, rising inflation is becoming more and more of concern.
