World Economy: inflation measured by the producer price reached 9.8%, the highest level

Sep 14, 2008

inflation measured by the producer price reached 9.8%, the highest level

Wholesale prices jumped in July to the USA, posting a year on their strongest increase in 27 years, which rekindled fears about inflation even as real estate continues crack on all sides and threatening the overall economy.

Producer prices rose by 1.2% in July compared to June, while the core index (excluding food and energy) accelerated to 0.7%. The increases are much larger than what analysts predicted.

The real shock, however, comes from the evolution over one year: inflation measured by the producer price reached 9.8%, the highest level since June 1981, and 3.5% for the index base, which is the greatest rise since 1991.

The index was highly anticipated after the disturbing figures on consumer prices published last week, which had highlighted in particular an increase of 5.6% inflation over one year.

"It will be difficult for the Fed (the central bank, Ed) to ignore these figures at its next meeting. That said, and recent signs of economic weakness ahead make it unlikely this year increased its key rate," currently set at 2%, said Kenneth Beauchemin the firm Global Insight.

In July, energy prices and food were packed. But outside those volatile sectors, increases were recorded for prices of machinery, transport equipment and food packaging.

"The surge of base can not be explained by a single category, indicating that manufacturers meet the rising costs upstream by raising their own prices", said Aaron Smith of Moody's economy.com.

This is the great fear analyst: that companies, by dint of their bill to see an increase in raw materials, not pass the increases on their own customers.

Generally, companies prefer to trim their profit margins, especially in a slowing of demand as is the case with the current economic crisis.

The determining factor of this crisis is real estate, and Tuesday brought its share of bad news on this front as well.

Housing starts of dwellings fell by 11% in July compared to June, and building permits by 17.7% - cuts expected after the atypical bond last month, which saw developers rush to launch yards before entering a new code of urban planning in New York.

But the weakening remains Manifest: housing starts fell to their lowest level since March 1991, when the previous real estate crisis.

"We remain around levels that are not expected to be seen outside major recessions," said independent economist Joel Naroff.

The figures are very real estate followed while the sector accumulates setbacks.

The president of the Dallas Fed, Richard Fisher, ruled Tuesday that "the worst is yet to come in the correction of property" and warned that the U.S. economy might find themselves at a standstill in the second half.

The difficulties of the sector débordent indeed heavily on the rest of the economy and condition restart.

Tuesday, the banner DIY Home Depot reported a profit decline of 24%, because of declining consumption.

And the refinancing of mortgage giants Fannie Mae and Freddie Mac peinaient to recover the head, after falling by over 20% on the stock market the previous day on rumors of threats of bankruptcy for recapitalization for the government.

World Economy

inflation measured by the producer price reached 9.8%, the highest level

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