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Analysts Deliver Divided Views On Inflation

By John S. McClenahen Although the U.S. Labor Department's Producer Price Index rose 0.1% in January following three months of declines, "there is no need to worry about inflation," says Gerald D. Cohen, senior economist at Merrill Lynch & Co., New York. One reason: Producer prices were down 2.6% during the past 12 months, the largest year-on-year decline since 1950, says Cohen. Meanwhile, concern about inflation and higher federal deficits will cause the Federal Reserve to begin raising short-term interest rates in May, predict economic forecasters at DRI/WEFA, Lexington, Mass. They expect Chairman Alan Greenspan and his colleagues on the Federal Open Market Committee to raise the federal funds target rate to 2% at their May 7 meeting. The influential federal funds target rate is now 1.75%, and an increase in May would come much earlier than previously expected.

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