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Inflation? What Inflation?

By John S. McClenahen The Federal Open Market Committee, the Federal Reserve panel that adjusts short-term U.S. interest rates, is right to be more concerned about getting GDP growing again than igniting a new round of inflation. Indeed, two just-released sets of data show a remarkable absence of inflationary pressures in the American economy. The Bureau of Labor Statistics' Producer Price Index for Finished Goods (PPI) actually fell 1.6% between September and October, more than five times the 0.3% decline that economists generally expected. Lower prices for energy, cars, light trucks and food led the decline. The drop in energy prices was particularly dramatic, falling 7.7% in October after a 0.9% gain in September. For the first 10 months of 2001, the overall PPI decreased at a 0.8% seasonally adjusted annual rate, compared with a 3.6% increase for full-year 2000. "Inflation should fall in coming months as the recession further depresses pricing," adds Stan Shipley, a senior economist at Merrill Lynch & Co., New York. Meanwhile, the U.S. Import Price Index, also calculated by the U.S. Bureau of Labor Statistics, fell 2.4% in October, the largest decline since the agency began monthly publication of the index in 1989. The decline is primarily attributable to a 15.7% decrease in the price of petroleum imports. Prices of non-petroleum imports were down 0.4%. For the 12 months ending in October 2001, import prices overall were down 7.4%, driven by a 32.5% fall in the price of imported petroleum.

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