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Mix-Ansicht- John Crudele zur Fed... - JüKü, 16.05.2000, 13:49
John Crudele zur Fed...
Quelle: http://nypostonline.com/business/29756.htm
HAS the problem of inflation been licked? Not even close.
Last week, Washington announced that wholesale inflation declined 0.3 percent in April. There had been two 1 percent increases in producer prices in a row, but the drop announced Friday - which Wall Street had been expecting - gave the stock market an excuse to cheer.
You can bet the Federal Reserve won't be applauding when it meets tomorrow.
And there is still a very good chance that interest rates will be raised a half-percentage point this time, with similar hikes in the months ahead.
In other words, without the occurrence of some extraordinary event, interest rates are going much higher between now and the presidential election.
As this column has been saying for a long time, the Fed has stopped placing much weight on producer and consumer prices that are measured by the government. These two series of numbers, called the Producer Price Index and the Consumer Price Index, are volatile, unreliable and adjusted in every way possible so they don't show inflation.
Even with all the manipulation, the inflation experienced by consumers and producers has been increasing sharply over the last year. After Friday's tame number, producer inflation is still up an unacceptable 3.9 percent over the last year.
The Consumer Price Index for April will be reported just before the Fed meets on Tuesday. It's already up 3.7 percent from last year's level. And in February and March, the CPI grew 0.5 percent and 0.7 percent, respectively. And since inflation on the consumer level tends to lag the price increases seen by producers, the CPI could suffer another hit or two.
But let me say it again. These numbers matter a whole lot more to the stock market than to the policy-makers at the Fed.
Alan Greenspan couldn't have been any more clear when he said earlier this year - and almost nobody in the media or on Wall Street picked it up - that he was now focusing on the Personal Consumption Expenditure inflation numbers released by the Commerce Department.
The PCE inflation is a figure released along with the government's gross domestic product report. It rose 3.2 percent in the first quarter, up from fourth-quarter growth of 2.5 percent.
And the PCE, which also comes out once a month, grew at a 0.3 percent rate in February and a 0.4 percent rate in March.
Why does this number matter? Because Greenspan has been mainly concerned that bubble money from Wall Street and all the dot-com riches have been fueling consumer inflation. Anecdotal evidence supports the concern, as first-home and vacation-home prices have been soaring nationally beyond levels that could be supported by wage increases alone.
Also, the implicit price-deflator contained in the GDP report showed inflation running at a 2.7 percent annual rate in the first quarter. It was only 1.9 percent in the fourth quarter.
But Greenspan isn't being candid when he points to the PCE and the implicit price-deflator as his new favorite predicting tools.
As this column has also been saying, the Fed chairman seems to be relying heavily on a predictor of future price inflation that is put together by the Economic Cycle Research Institute. That's the forecasting group that was headed by Geoffrey Moore until his death a couple of weeks ago. Moore was Greenspan's mentor.
The ECRI's Future Inflation Gauge is running at an 11-year high and is scaring the bejesus out of the Fed, especially after this indicator correctly predicted the pickup in inflation this year.
Is the Future Inflation Gauge showing any letup in inflation?"A peak in the current inflation-cycle upturn is not on the horizon," says Lakshman Achuthan, the group's managing director."The Producer Price Index is a coincident indicator at best and doesn't tell you where inflation is going."
There are some other reasons that Friday's PPI should be taken lightly. The decline of 0.3 percent for the month of April occurred mainly because of a 4.1 percent drop in energy costs, including an 11.7 percent decline in gasoline prices and a 14 percent drop in home heating oil.
Energy prices have stopped climbing, and in some parts of the country, there has even been a slight decline. But the easing of energy prices began just a couple of weeks ago. And it is very curious that government statisticians have been quick to plug the lower prices into their inflation data when it took months before higher prices were worked into the calculations.
The Fed knows all this. And that's why it'll have to remain aggressive on interest rates.
It also knows the stock market is looking for the flimsiest excuse to repump the bubble back to its full size. The stock market rose on Friday's inflation report, but the threat of Fed rate action on Tuesday kept the gains in check.
So tomorrow, the Fed will need to send an unambiguous message to Wall Street that inflation is still a very large concern. And that's what it will do.
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