Ahead Of The Bell: Consumer Price Index
The Associated Press
06/17/09 - 06:49 AM EDT
WASHINGTON (AP) — Consumer prices are expected to rise slightly in May due to a rapid increase in the cost of gasoline.
Wall Street economists expect the Consumer Price Index rose 0.3 percent in May, according to a survey by Thomson Reuters. The CPI was flat in April and dipped slightly in March.
The Labor Department is scheduled to release the May report Wednesday at 8:30 a.m. EDT.
The recession has kept inflation in check as the unemployment rate has reached a 25-year high and factories are operating at record-low levels. Workers concerned about their jobs are less likely to push for higher pay, while low consumer demand has made it difficult for companies to raise prices.
Excluding volatile food and energy, the core CPI is forecast to rise only 0.1 percent.
In the past 12 months, prices have actually fallen as the recession has deepened. Economists expect the CPI to drop 0.9 percent in the year ending in May, with core inflation forecast to rise 1.8 percent.
The Labor Department said Tuesday that wholesale prices dropped 5 percent in May from the previous year, the sharpest decline in 60 years.
Falling prices can raise fears about deflation, a destabilizing period of extended declines. But most analysts say efforts by the Federal Reserve to stimulate the economy will prevent that from occurring.
The Fed has pushed a key interest rate to a record low near zero and has taken a number of other measures to flood the banking system with cash to counter a severe credit crisis.
A group of economists from the nation's largest banks predicted Tuesday that prices will continue to fall this year. The American Bankers Association's Economic Advisory Committee projects that core consumer prices will decline at a 1 percent annual rate by the end of 2009.
But Bruce Kasman, chief economist for JPMorgan Chase & Co. and chairman of the committee, said inflation is a greater risk than deflation over the next several years, due to huge budget deficits topping $1 trillion this year and next.
There are concerns about deflation in other parts of the world, especially in Japan, where prices have been falling. That country underwent a destabilizing bout of deflation during the 1990s, when the world's second largest economy struggled to emerge from a real estate and banking crisis.
Price declines also have been registered in China and India.
Many economists don't expect the Fed to raise interest rates until the unemployment rate stops rising. It shot up to a 25-year high of 9.4 percent in May and many forecasters believe the jobless rate will top 10 percent by year's end.
More layoffs have been announced in the past week. MySpace, the social networking Web site owned by News Corp., said Tuesday it will cut nearly 30 percent of its work force, or about 420 jobs.
Cessna Aircraft Co., the nation's largest builder of corporate jets, said Friday it will cut 1,300 jobs by August, on top of 6,900 layoffs that it previously announced.
