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Inflation Isn't Cooling At The Core

Economic Trends


Concern about core inflation, which is measured by excluding volatile food and energy prices, isn't likely to be alleviated by the next report on the behavior of the producer price index. Economist Donald Ratajczak of Georgia State University predicts that the PPI for finished goods rose 0.2% in March. Not counting energy and food prices, however, he estimates that the finished goods index was up about 0.4% to 0.5% for the third month in a row--"an unusually strong rise for core inflation in a recession."

Ratajczak reports that consumer food prices rose sharply in March, posting a 0.7% rise. Vegetable prices, affected by the California drought, and egg, meat, poultry, and flour prices all rose significantly. Energy prices continued to fall in March but at a moderating rate, and "further significant declines in energy prices are not likely."

As for the finished-goods index, less food and energy, Ratajczak notes that apparel, newspapers, and pharmaceuticals all posted sizable gains, while prices for most capital equipment rose moderately. Looking ahead, he expects core inflation to be up 4% this year, compared with a 1.7% rise in the full PPI.GENE KORETZ

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