Wall Street: inflation watch

Article Abstract:

It is unclear whether a rise in commodity prices will lead to higher levels of inflation in the US. The Federal Reserve, along with many economists, does not see a danger and sees rising commodity prices as a temporary phenomenon. Morgan Stanley's Stephen Roach is less optimistic, and draws parallels between 1996 and the early 1970s. Wages rose to compensate for higher fuel and food prices. Wages are thus seen as important in 1996, when problems could arise from a tighter labor market.

Commodities

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Rate debate hots up

Article Abstract:

The Federal Funds rate will be set following a meeting of the Federal Open Market Committee in May 1996. There is concern that inflation could rise, due to rising petroleum prices and gross domestic product (GDP) growth of 2.8% for 1st qtr 1996. The economy may not be as robust as such as GDP growth rate might suggest. Sales of new homes were down in Mar 1996 and only 2,000 jobs were created in April 1996. Rate are unlikely to be raised following the meeting in May.

Interest rates

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US: nice surprise

Article Abstract:

US inflation figures excluding energy and food look set to drop to 2.5% by 1996, according to Kleinwort Benson, though the general opinion argues for a rise to 3%. Inflationary pressure from commodity prices is easing as are intermediate goods prices. Price increases are hindered by weak retail performances. Slow income growth and concern about unemployment are affecting consumption. Productivity rises are keeping wage costs low due to a rise in capital investment.

Consumption (Economics)

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