Week Ahead: FOMC October Minutes, Inflation Data

14 Nov 2015 | Author: | No comments yet »

U.S. Producer Prices Stymied by Low Inflation.

The economic calendar next week is highlighted by the minutes from the Federal Reserve’s October meeting as well as an array of economic data focusing notably on inflation and housing. WASHINGTON (AP) — The prices charged by farmers, manufacturers and other producers fell in October for the second straight month, fresh evidence that there is little sign of inflation in the U.S. economy.The producer-price index, which measures the prices companies receive for goods and services, decreased 0.4% in October, the Labor Department said Friday. Overall producer prices decreased 1.6% in October from a year earlier, the 10th straight year-over-year decline and the biggest annual fall since the government started publishing the series in 2009. Federal Reserve policy makers are looking for signs that a stronger economy and tighter labor market will help move inflation closer to their 2 percent target that hasn’t been met since April 2012. “We’re seeing deflationary pressures at the producer level,” said Laura Rosner, a U.S. economist at BNP Paribas in New York, who forecast a decline in wholesale prices. “It is a fragile environment to be raising rates.

It confirms why the Fed is likely to move very slowly because the inflation outlook remains uncertain and fragile.” Food prices dropped 0.8 percent for a second month, led by the biggest decline in the cost of eggs since March 2000. Weak price gains pose a challenge for the Federal Reserve, which targets a 2 percent inflation rate as a cushion against falling prices, or deflation. Fed officials are widely expected to raise the short-term interest rate they control for the first time in nine years at their next meeting in December. In any case, the October minutes will be parsed for any clues that might offer further evidence that central bankers are leaning toward a December liftoff.

Fed officials have blamed weak inflation on temporary factors, including depressed energy and import prices, and most economists surveyed by The Wall Street Journal now believe the central bank will raise rates in December. Producer costs after eliminating trade services along with food and fuel declined 0.1 percent in October following a 0.3 percent drop a month earlier. The CPI is a key gauge of inflation as it measures the price changes month-over-month (and year-over-year) to a basket of goods commonly purchased by consumers.

Despite strong job growth and a declining headline unemployment rate, U.S. wages haven’t risen accordingly, which has held inflation well below the Fed’s 2% target range. Fed officials, who have repeatedly claimed inflation will eventually start climbing toward their target, will be looking for evidence of that Tuesday with the release of the CPI numbers.

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