Core Inflation Remains in Check As Energy Pushes Overall Prices Up

I predicted this; history bears me out if you look back on my posts in
December 2005.


WASHINGTON -- U.S. consumer prices accelerated last month at their
fastest pace in almost two years on sharply higher energy prices but
underlying inflation remained under wraps, bringing it down closer to
the Federal Reserve's comfort zone.

· Read the latest news and analysis on the economy at WSJ.com's new
Real Time Economics blog.The data suggest that higher energy,
wholesale and import prices haven't seeped into broader consumer
inflation, which should keep Fed officials on hold as underlying
inflation remains on the moderating trajectory they have long
forecast.

The consumer price index rose 0.7% in May, the Labor Department said
Friday, up from April's 0.4% rise and the highest gain since September
2005. Yet the core CPI, which excludes volatile food and energy
prices, advanced just 0.1%, down from the previous month's 0.2%
increase.

Unrounded, the CPI rose 0.674% last month. The core CPI advanced
0.149% unrounded, so that component came very close to being rounded
up to 0.2%.

The data were broadly in line with Wall Street forecasts with the
headline number a bit above expectations and the core a bit below. The
median forecast of 27 economists surveyed by Dow Jones Newswires was
for a 0.6% CPI increase and 0.2% core rise.

Overall consumer inflation was up 2.7% from a year ago. The core CPI,
in contrast, was up just 2.2% compared to a year ago, down 0.1
percentage point from April and the slowest annual increase since
March 2006. Over the past three months, the core CPI has grown at a
1.6% annualized rate.

The figures suggest the Federal Reserve will hold the federal funds
rate unchanged at 5.25% for an eighth-straight time when it meets
later this month and maintain its anti-inflation bias.

The Fed's preferred inflation gauge, the core personal consumption
expenditures price index, has also trended down in recent months and
was running at a 2% annual clip through April. That is considered the
top end of the Fed's preferred zone.

Still, Fed Chairman Ben Bernanke said last week that while there has
been a "gradual ebbing" in core inflation, risks remain to the upside.
The sharp rise in headline inflation will likely keep the Fed on edge
about the possibility of pass-through effects down the road.

Financial markets have in recent days come to grips with the idea that
the Fed probably won't lower rates this year, as once was widely
expected, amid signs of robust economic growth. Bond yields have risen
sharply in the past two weeks, and futures markets are even pricing in
slight odds of higher interest rates next year. Friday's CPI report
should ease rate-increase fears.

Energy prices last month increased by 5.4%, according to Friday's
report. Gasoline prices jumped 10.5%. Natural gas prices fell 0.9%,
while electricity prices rose 0.1%. Food prices increased 0.3%.
Airline fares fell 0.6% and new vehicle prices declined 0.2%. Medical
care prices increased 0.3%. Prescription drug prices fell 0.1%.

Housing, which accounts for 40% of the CPI index, rose 0.2% for a
third-straight month, suggesting that the housing slowdown is starting
to have a damping effect on inflation. Rent climbed by 0.3%. Owners'
equivalent rent edged up just 0.1%. Lodging away from home was up
1.6%. Clothing prices fell 0.3%. Education and communication rose
0.6%.

In a separate report, the Labor Department said the average weekly
earnings of U.S. workers, adjusted for inflation, decreased 0.2% in
May. Average hourly earnings and average weekly hours each increased
0.3%.

Industrial Output Unchanged

U.S. industrial production didn't budge in May, restrained by a drop
in the output of utilities, while use of resources relaxed a bit.

Industrial production was unchanged last month, the Federal Reserve
said Friday. Output increased 0.4% in April, revised down from a
previously estimated 0.7% increase.

Capacity utilization receded to 81.3%. April capacity use was 81.5%,
revised down from 81.6%. The 1972-2005 average remained 81.0%.

The numbers surprised Wall Street. The median estimates of 26
economists surveyed by Dow Jones Newswires were a 0.1% increase in
production for May and a capacity utilization rate of 81.5%.

Over the 12 months ending in May, industrial production advanced 1.6%,
while capacity use was up 2.1% from a year earlier.

Manufacturing production increased 0.1% in May, after rising 0.2% in
April. Manufacturing capacity utilization dropped to 79.9% from 80.0%.
Output in the mining industry rose 0.5% in May after decreasing 0.6%
the prior month. Mining capacity was 90.5%, up from 90.0% in April.

Utilities production decreased 1.3% last month, the Fed said. It rose
3.4% in April, when unusually cold weather occurred. Utilities
capacity use fell to 84.7% last month from 85.8% in April.

The 0.1% increase in manufacturing output included a 0.1% rise in the
production of durable goods. Nondurable goods manufacturing was flat.

Manufacturing of motor vehicles and parts decreased 0.5% in May. The
Fed said the production of automobiles and light trucks decreased to a
seasonally adjusted annual rate of 10.61 million from 10.76 million in
April.

Excluding autos, U.S. industrial production was unchanged in May after
rising 0.4% the previous month. Machinery production fell 0.5% in May
after a 1.2% decrease in April. Business equipment was unchanged a
second month in a row.

The technology industry's goods output advanced last month. Production
in that sector rose 0.3% in May, after rising 0.8% the month before.
Within this category, production of semiconductors and related parts
declined 0.3% last month.

The service sector isn't represented in the Fed's industrial
production data. The service sector makes up most of the U.S. economy.

Current Account Deficit Expands

The U.S. current account deficit widened in the first quarter this
year, reflecting higher energy prices, but not as much as analysts had
feared ahead of the report.

The current account deficit increased to $192.6 billion during the
period of January through March from a downwardly revised $187.9
billion in the fourth quarter 2006, the Commerce Department said
Friday. The fourth-quarter deficit was originally reported as $195.8
billion.

The current account balance combines trade of goods and services,
transfer payments, and investment income. About 90% of the deficit is
accounted for by the balance in goods and services.

Ahead of the report, analysts had predicted the deficit would top $200
billion after higher energy prices inflated imports during the
quarter. A Dow Jones survey of 18 economists produced an average
forecast for a $201.0 billion deficit for the first quarter.

The first-quarter shortfall amounted to 5.7% of gross domestic
product, slightly higher than the 5.6% share of GDP recorded in the
fourth quarter.

A $176.8 billion shortfall in goods and services trade made up the
bulk of the overall deficit. This compared with a revised fourth-
quarter deficit of $176.9 billion. Imports of goods rose to $471.0
billion from $466.8 billion; reflecting a rise in the value of
petroleum-related purchases amid higher prices. Exports of goods
advanced to $270.1 billion from $266.5 billion.

While U.S. trade of goods was in deficit, services trade was in
surplus. That cushion rose to $24.1 billion from the fourth quarter's
$23.4 billion.

Also contributing to the current-account deficit -- albeit at a far
smaller degree -- was a $26.1 billion shortfall in unilateral current
transfers. These transfers are one-way payments between countries, for
example U.S. government grants, or foreign aid. Other transfers are
private remittances, such as payments from foreign workers in the U.S.
to their families abroad; and pension payments to a foreign resident
who once worked in a particular country. More transfers left the U.S.
than came in.

Helping reduce the overall current-account deficit was a $10.4 billion
surplus of income, following a $9.7 billion surplus in the fourth
quarter. The balance of income is figured by comparing income receipts
on U.S.-owned assets abroad and receipts for compensation of U.S.
workers overseas with income payments on foreign-owned assets in the
U.S. and payments for compensation of foreign workers in the U.S.

The trade report also showed that foreigners purchased $129.8 billion
worth of U.S. corporate and agency bonds during the first quarter,
down from the $118.3 billion of purchases at the end of 2006.

Foreigners purchased $45.6 billion of U.S. Treasury securities during
the quarter, up from $22.1 billion in the prior three months.
Foreigners bought a net $49.1 billion of U.S. stocks, compared with
net purchases of $26.6 billion in the fourth quarter.

Direct foreign investment rose $23.5 billion, compared to an increase
of $45.6 billion in the fourth quarter.

Vodoo economics: an 8% inflation rate is magically
transformed into a 1% rate and the market is happy.
Meanwhile I'm really payign those 8% increases.

In article . com,
Earl Evleth wrote:

I predicted this; history bears me out if you look back on my posts in
December 2005.

What part was that?

--
Remember YouTube - Nikki Giovanni: "We Are the Hokies. We Are Virginia Tech!"?
http://www.youtube.com/?v=O-Qx9dIr-68 then try this: Remembering Rosa Parks
http://www.researchchannel.org/prog/...D=3975&fID=345
Iraq and Afghanistan Veterans of America http://www.iava.org/index.php

In article . com,
rick++ wrote:

Vodoo economics: an 8% inflation rate is magically
transformed into a 1% rate and the market is happy.
Meanwhile I'm really payign those 8% increases.

The insignificance of food and fuel to Americans is a puzzle.

--
Remember YouTube - Nikki Giovanni: "We Are the Hokies. We Are Virginia Tech!"?
http://www.youtube.com/?v=O-Qx9dIr-68 then try this: Remembering Rosa Parks
http://www.researchchannel.org/prog/...D=3975&fID=345
Iraq and Afghanistan Veterans of America http://www.iava.org/index.php

In article . com,
says...
I predicted this; history bears me out if you look back on my posts in
December 2005.

Your history of criminal activities certainly bears checking out,
Stephen Bach.