Those analysts who spent much of 1994 warning about a comeback by inflation now are lamenting “coulda, woulda, shoulda.” The predicted price pressures simply haven’t materialized; inflation is the dog that refuses to bark. But a recent runup in prices for oil, food and autos has caused consumers to feel at least a modest pinch at the cashier’s window. A fresh inflation measure occurs Friday at the wholesale level, with the producer price index for May. Despite the previous month’s surprising jump of 0.5 percent, don’t look for much of a shock this time, says Chicago economist Robert Dederick. “The index should be up 0.3 percent, with the so-called core rate, which excludes food and energy, up 0.2 percent,” he says. Dederick, a consultant for Northern Trust Co., says it is premature to expect that the slowing economy will halt inflation in its tracks. Even so, he says, “Fed watchers should remain on call,” because the growing signs of weakness make it likely the Federal Reserve could notch down interest rates at any time.
Sinking feeling
Expectations of lower rates may be on instant display in Monday’s Treasury auction. Watch for rates to sink. In last week’s sale of short-term paper, three-month bills were sold at an average discount rate of 5.64 percent, while six-month bills sold at a discount of 5.61 percent; the latter was the lowest level in seven months. Analysts are predicting that yields must go lower still, while the Fed clings to a short-term lending target of 6 percent.
Leader of pack?
A nationwide credit watch is under way, as banks ponder whether to reduce their prime lending rate. One regional bank, Southwest Bank of St. Louis, took such action Friday, cutting its prime rate to 8.5 percent from 9 percent, in the wake of sluggish economic reports. However, none of the nation’s major banks moved to match the cut immediately. The last time the big banks changed their prime, they boosted the rate a half percentage point to 9 percent on Feb. 1.
Fresh air for greenback
The reviving health of the dollar has encouraged financial markets, as the greenback has made gains despite talk that interest rates in the U.S. are destined to fall. Although last week’s dollar rally was somewhat artificial, being boosted by huge purchases on the part of the world’s central banks, economist A. Gary Shilling, who is based in Springfield, N.J., sees room for the U.S. currency to rise further. His reasoning: All of the world’s economies are weak. “Fundamentally,” he says in his latest report, “the dollar should rise because major U.S. competitors have major problems.”
Up in the air, at last
The long-awaited inaugural flight of the Boeing 777 by United Airlines lifts off Wednesday, as the first of the new aircraft owned by the Elk Grove Township-based carrier departs London for Washington. The huge plane, featuring a wingspan two-thirds the length of a football field, is only slightly smaller than a 747.
`Buy-and-hold’ triumph
Investors in the stock market are ignoring warnings about a recession, remaining firmly focused on lower interest rates, says Walter Revis, vice president and market analyst for Principal Financial Securities Inc. He says the recent Wall Street rally represents “a triumph of the buy-and-hold philosophy. A lot of people are cautious, but they won’t sell.” Revis notes that those who unloaded stocks in recent months, when negative sentiment was at a peak, “have regretted selling.” He doesn’t expect a significant setback for stocks until something happens to reverse the declining course of interest rates.
