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U.S. Consumer Price Index Likely to Give Fed
Another Reason to Raise Rates
By Vincent Del Giudice and Terry Barrett
CPI May Have More Alarming Inflation News: U.S. Economy
Preview
Washington, Oct. 17 (Bloomberg) -- Investors are
bracing for
another dose of unsettling inflation news when the Labor
Department reports Tuesday on September consumer prices.
The consumer price index probably rose 0.3 percent in
September following a 0.3 percent gain a month earlier,
analysts
said. The CPI core rate, which omits food and energy,
probably
rose as well, climbing 0.3 percent in September after
rising 0.1
percent in August, analysts said.
The consumer price figures will follow Friday's report that
the producer price index posted the largest increase
since the
Persian Gulf crisis in September 1990, rising 1.1
percent in
September. Oil and tobacco led the increase. Auto
prices also
increased. The PPI core rate, meantime, jumped a
larger-than-
expected 0.8 percent.
``The CPI -- it's going to be another bad number,'' said
David Wyss, an economist at Standard & Poor's DRI in
Lexington,
Massachusetts. ``Higher oil and tobacco prices are
passed on to
the consumer very quickly. It's now more likely the Federal
Reserve will raise interest rates again.''
The Fed panel that sets interest rates, the Federal Open
Market Committee, next meets Nov. 16.
Twice this year, in June and August, the FOMC raised the
overnight bank lending rate a quarter percentage point
in an
effort to cool demand and prevent prices from rising at
a pace
that would undermine the stable economy. At the FOMC's last
session, Oct. 5, the committee refrained from raising
rates --
though it cautioned it could act again, if warranted.
The larger-than-expected increase in the PPI ``bolsters our
view that the Fed is going to tighten,'' said Gerald
Cohen, an
economist at Merrill Lynch & Co. in New York.
International Trade
Meanwhile, a Commerce Department report set for release
Wednesday will probably show that the international
trade deficit
in goods and services narrowed to $25.0 billion in
August from a
record $25.2 billion in July, analysts said. Still, the
deficit
is on target to set an annual record.
Consumer demand has driven imports up at a faster pace than
exports this year. If that demand for imports persists,
as it is
expected to, consumers will probably encounter higher
prices for
foreign-made goods as the dollar weakens against other
major
currencies.
In other reports due this week:
-- The Commerce Department is expected to report Tuesday
that starts of new housing construction declined in
September
amid rising mortgage rates, analysts said. Starts
probably fell
2.7 percent for the month to a seasonally adjusted
annual rate of
1.631 million after rising a month earlier on strength in
apartment and condominium projects.
-- The Labor Department will probably report Thursday that
first-time claims for state unemployment benefits
increased in
the week ended Oct. 16, analysts said. Jobless claims
probably
increased by 6,000 last week to a seasonally adjusted
291,000
after falling by 29,000 the previous week, analysts said.
-- The Federal Reserve Bank of Philadelphia is expected to
report Thursday that manufacturing in its region cooled in
October. The Philadelphia Fed's factory index, for
Delaware,
eastern Pennsylvania and southern New Jersey, probably
fell to
15.3 for the month from 17.6 during September, analysts
said.
Finally, perhaps this week, certainly by the end of the
month, the Treasury is expected to report a September
budget
surplus of $54.7 billion, completing the government's
second
consecutive year with a budget surplus. The last time that
happened was in 1956 and 1957.
Bloomberg Survey
Date Time Period Indicator BN Survey Prior
10/19 8:30 Sept. Consumer Price Index 0.3% 0.3%
10/19 8:30 Sept. CPI Ex-food & energy 0.3% 0.1%
10/19 8:30 Sept. Housing Starts 1.631M 1.676M
10/20 8:30 Aug. Trade Balance -$25.0B -$25.2B
10/21 8:30 10/16 Initial Jobless Claims 291K 285K
10/21 10:00 Oct. Philadelphia Fed 15.3 17.6
TBA 2:00 Sept. Budget Statement $54.7B $38.2B
Federal Reserve, Treasury
Monday, Oct. 18
Sea Island, Georgia: Federal Reserve Bank of Atlanta
President Jack Guynn speaks at a Fed-sponsored
conference on
financial crises.
Woodstock, Vermont: Federal Reserve Bank of Boston
President
Cathy Minehan delivers welcoming remarks at the Boston
Fed's
conference on ``Monetary Policy in a Low Inflation
Environment.''
Tuesday, Oct. 19
Woodstock, Vermont: Federal Reserve Governor Edward
Gramlich
addresses the Federal Reserve Bank of Boston's
``Monetary Policy
in a Low-Inflation Environment.''
Sea Island, Georgia: Federal Reserve Chairman Alan
Greenspan
and Federal Reserve Bank of Cleveland President Jerry
Jordan will
speak at a Fed-sponsored conference on financial crises
at The
Cloister on Sea Island, Georgia.
Washington: U.S. Treasury Secretary Lawrence Summers and
U.S. Treasurer Mary Ellen Withrow tour Bureau of
Engraving and
Printing.
Wednesday, Oct. 20
Woodstock, Vermont: Federal Reserve Bank of Boston
President
Cathy Minehan addresses Boston Fed's conference on
``Monetary
Policy in a Low Inflation Environment.''
Thursday, Oct. 21
Washington: Federal Reserve Bank of Cleveland President
Jerry Jordan speaks at the Cato Institute.
Evanston, Illinois: Federal Reserve Bank of Chicago Michael
Moskow gives opening remarks at the Transportation
Infrastructure: Challenges for the 21st Century
conference at
Northwestern University.
Houston: Federal Reserve Governor Edward Kelley speaks to
the Houston Society of Certified Financial Analysts.
Abilene, Texas: Federal Reserve Bank of Richmond President
Alfred Broaddus speaks at Hardin-Simmons University on
the U.S.
economy.
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