For Now, Price Pressures at Bay
With productivity slowing down and the dollar trading around multiyear lows against the yen and euro, concerns about inflation are starting to escalate -- again.
But consumers, investors and Federal Reserve officials have no reason to panic, and upcoming inflation reports are likely to hammer home that message.
The producer price index is expected to climb just 0.1% in November, reflecting a recent decline in oil prices while the core rate is seen rising 0.2%. Meanwhile, the headline and the core consumer price index, due out next week, should increase 0.2%.
Recent worries about inflation have centered on declining productivity, the weak dollar and soaring commodity costs.In the third quarter, output per hour worked rose by 1.8%, the slowest quarterly increase since the final three months of 2002. When productivity softens and workers are producing fewer goods and services each hour than they once did, businesses sometimes consider raising prices to increase profits. Ethan Harris, a senior economist at Lehman Brothers, thinks output growth will slow next year to 2% from about 3% currently, but said this rate is still "robust enough to hold core inflation in check." Historically, he said, swings in productivity have had more impact on profit margins than inflation. "Companies are not throwing in the towel on their productivity focus and may in fact be embarking on a renewed round of cost-cutting to protect their margins," said Merrill Lynch economist David Rosenberg. Firms like Colgate-Palmolive (CL), Bayer (BAY), JDA Software (JDAS) and Honeywell (HON) all plan to lay off workers in the U.S. in an effort to reduce expenses and boost profits. While wages have picked up this year from abnormally low levels, there is still plenty of slack in the labor market and little evidence that labor costs are becoming a concern. In theory, higher wages lead to higher prices, though this doesn't always happen.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV