Tuesday, June 17, 2008

"Many economists"

Producer Prices Rise 1.4% in May

Businesses struggled with higher production costs last month, primarily as a result of record-high oil prices, meaning Americans may face more expensive items on store shelves soon.

The Producer Price Index advanced 1.4 percent in May, its fastest pace in six months and another troubling sign that inflation is worsening, the government said Tuesday.

Many economists, however, prefer to measure price increases in products other than energy and food. While this gauge, called the “core” index, does not measure the full effect of inflation on Americans, it does offer a guide to how long inflation might linger. For May, core producer prices rose at a tepid pace, 0.2 percent, in line with economists’ expectations. ...

Investors were likely to focus on the producer prices report as the Federal Reserve shifts some of its focus to the inflation issue. The index was up significantly over the last 12 months; from May 2007 to May 2008, producer prices grew 7.2 percent, and core prices were up 3 percent.
At 3 percent, the "core" rate was signaling limited inflation over the last 12 months, but that's belied by the 7.2 percent headline (or "real") number. So why use it?


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