October 17, 2006

THE FED CAN'T CUT FAST ENOUGH TO KEEP UP:

Wholesale prices plummet; industrial production also falls (Associated Press, 10/17/06)

Wholesale inflation, helped by a record plunge in gasoline prices, dropped by the largest amount in more than three years in September. [...]

While the overall inflation performance was much better than expected, core inflation, which excludes energy and food, jumped by 0.6 percent in September, the biggest increase in this area in 20 months.

However, the increase in core inflation was heavily influenced by increases in new car prices, reflecting the end of dealer incentives which had been used to try to sell off a glut of unsold cars. Excluding the rise in car and truck prices, core inflation would have been up a much smaller 0.1 percent.

Brian Bethune, U.S. economist at Global Insight, called the overall performance of wholesale prices in September “unequivocally good news” and said it should keep the Federal Reserve on hold when policymakers meet next week.

After raising interest rates 17 consecutive times over two years, the Fed has left rates unchanged since August with economists predicting the central bank will likely remain on hold for the rest of the year.

Posted by Orrin Judd at October 17, 2006 5:13 PM
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