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U.S. Inflation Soars At Producer Level

Propelled by higher prices for residential natural gas, residential electric power, gasoline and liquefied petroleum gas, the U.S. Labor Department's Producer Price Index (PPI) for finished goods soared a full percentage point in July. It was the biggest month-to-month gain of the year and twice as much as the five-tenths percent increase economists generally expected.

The so-called core PPI, the overall index minus price changes for food and fuel, also rose dramatically in July, increasing by four-tenths of a percentage point, four times as much as most analysts anticipated.

Despite recent energy price increases, the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group, is raising its U.S. GDP forecasts for this year and next. It expects inflation-adjusted GDP to grow 3.6% in 2005 and 3.2% in 2006, each two-tenths of a percentage point higher than the levels the group projected in its quarterly forecast released in May. "A moderate pace of overall job growth and income gains among those already employed make energy relatively less important in consumer budgets than in the past," explains Daniel J. Meckstroth, the manufacturing group's chief economist. "The overall U.S. economy is also more energy efficient per dollar of GDP," he adds.

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