Month after month, government inflation figures repeat the mantra that all is well. Yet economists and members of the Federal Reserve see a growing urgency to tighten credit. The goal: choking off the weed of price pressure before it can sprout. More queasiness over inflation could erupt Thursday and Friday, with reports on the producer price index and consumer price index, respectively. Chicago economist Brian Wesbury expects wholesale inflation to show an increase of 0.2 percent for the month, while consumer prices rise by 0.3 percent. When food and energy are excluded, however, he sees producer prices remaining flat, while CPI rises a tiny 0.1 percent. “Productivity growth from high-tech is keeping price pressures extremely low,” said Wesbury, of Griffin, Kubik, Stephens & Thompson, a Chicago investment firm. “Although on-line retail sales comprise a very small percentage of the total, they are having an outsized impact on prices, creating fierce competition.” Wesbury said labor costs have been held in check and price increases aren’t being passed along. His bottom line: The Fed will hold rates steady, perhaps for the rest of this year.
CONSTRUCTION
MILD SLOWING
The torrid construction industry appears unstoppable, despite predictions it would cool because of rising mortgage rates. Watch for Wednesday’s report on January housing starts to show a mild bit of slowing, to an annual rate of 1.67 million units, from 1.71 million a month earlier. That’s the prediction of economist Sung Won Sohn, who said slight weakening is due because “mortgage rates last month topped 8 percent, while there were weather problems in many parts of the country.” Sohn, of Wells Fargo & Co. in Minneapolis, also noted: “Builders are unanimous that they can’t find enough bodies to get the work done. Everyone is complaining about a shortage of carpenters, plumbers and other skilled trades.”
FEDERAL RESERVE
CLUES FROM GREENSPAN
Severe disruptions, confusion and crushing losses in the Treasury debt market add urgency to Thursday’s visit by Fed Chairman Alan Greenspan to lawmakers on Capitol Hill. It’s his Humphrey-Hawkins testimony, and the focus will be on interest rates. Specifically: How many rate increases lie ahead? Greenspan should offer clues about whether he sees the economy losing momentum anytime. He probably will be mum, though, about the likelihood that Fed policymakers will ratchet rates higher at their next meeting, on March 21. The Fed already has raised short-term interest rates four times since June, in an effort to slow the red-hot pace of consumer spending.
STOCKS
AT A CROSSROADS
The stock market enters the week still bruised from a severe sell-off last week, in which the Dow Jones industrial average fell 538.59 points, or 4.9 percent, to close at 10,425.21. Analysts said the index now stands at a level it first crossed 10 months ago. During that time, stocks in high-technology companies have just about doubled. Analysts said Wall Street is at a crossroads, trying to decide whether computer stocks will plummet back to earth or the equities of old-line manufacturing companies can play a meaningful game of catch-up.
