July numbers raise inflation concerns
Housing starts hit a 17-year low in July and a wholesale price report rose to a 27-year high, monthly statistics say. John Dimsdale puts the numbers in perspective and asks -- What's next?
Patricia Russell and Ralph Ashley compare prices while shopping for groceries at Lorenzo's Supermarket in North Miami, Fla. (Joe Raedle/Getty Images)
More on Spending, Housing - Real Estate, Health, Retail, America's Financial Crisis, Food
TEXT OF STORY
Kai Ryssdal: The housing industry and those problem mortgages that Nancy mentioned are at the root of the credit squeeze, of course. And just like Wall Street, troubles in the housing industry aren't going away as quickly as anybody had hoped. We learned this morning housing starts hit a 17-year low in July. If they're not selling, nobody's gonna build 'em, right? At the same time, prices at the wholesale level bounced up to a 27-year high. Marketplace's John Dimsdale has more now on the economic indicator du jour and where things go from here.
John Dimsdale: Producer prices jumped 1.2 percent last month -- much more than expected. Even when you take out energy and food swings, core inflation rose .07 of a percent. That means high energy prices are rippling through the whole economy. One big reason: producers are passing along their higher costs of supplies. But remember, these are July numbers, and prices for raw materials from aluminium to fertilizer to petroleum have dropped as much as 20 percent since. Many economists, including Gary Shilling, figure July will likely be the worst of the inflation.
Gary Shilling: Because commodity prices are starting to crumble. So I think by the end of the year, I'd be bold enough to say, the federal reserve will be back worrying about deflation as opposed to inflation.
Ira Kaminow: On other hand, we don't know how long this good news on commodity prices is going to last.
That's Ira Kaminow, a former vice president of the Philadelphia Fed. He says Fed members are counting on the slowing economy to take the edge off inflation. But if the Fed waits too long, he says there's a risk.
Kaminow: Once workers and businesses begin to think that inflation is flaring up again, they're gonna wanna begin pushing up their prices and wages so they don't get killed by rising wages and prices from their suppliers. Then you can start getting a very serious wage-price spiral.
If core inflation doesn't drop substantially soon, Kaminow figures the Fed will begin raising interest rates before the year is out.
In Washington, I'm John Dimsdale for Marketplace.
Comments
Comment | Refresh
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.