You can bet the 0.5% jump in November wholesale prices will be on the minds of Alan Greenspan & Co. when the Federal Open Markets Committee meets the week of Dec. 13. The spike reflected both higher energy costs and greater price strength in the 0.2% "core" gain, which leaves out volatile food and fuel costs. On a quarterly basis, the producer price index (PPI) has grown at a 8.1% rate so far the fourth quarter, according to date released by the government Dec. 10. The Federal Reserve now has plenty of evidence to buttress its continuing tightening mode, especially with the dollar falling and the pace of economic recovery still uncertain.
At Action Economics research group, forecasters continue to suspect that inflation in the U.S. is increasing at around a 2.5% annual rate. But there's a risk of the rate moving modestly higher in 2005. All in all, not enough to spook investors just yet. But concerns about inflation will likely accelerate the pace of policy tightening by the Fed on interest rates. All eyes will be on the first three months of 2005, when U.S. inflation figures are seasonally strong, and rising import prices could could fuel inflation fire.