Stocks in New York Continue to Unwind
05/20/08 - 03:25 PM EDT
Sarina Penn
Glassman, however, believes that fear is an unfounded one and that Kohn was probably paying lip service to it. "Those who worry about inflation expectations are living in a textbook," he said. "If we were living in a world where workers were represented by large unions and it was a centralized bargaining process, then inflation expectations could actually affect wage bargains and raise labor costs. But we don't live in those kinds of markets anymore."
Because of that, Glassman said, labor costs -- which, he noted, represent most of what people pay for in any given product -- have been kept mostly under control. "That's why we're seeing these core measures staying pretty well behaved," he said. Indeed, in his speech Kohn highlighted the evident lack of wage inflation as a positive sign. Stone concurred on this point, noting that overall inflation gets out of control when wages begin chasing prices -- such as they did in 1981, when there was a 9.4% spike in average hourly earnings -- and that this "wage/price spiral" is simply not happening now. "I think we're more disciplined now," he said. At the same time, June's crude-oil contract, which is due to expire today, shot up to a new all-time high of $129.60 a barrel. Recently, futures were jumping $1.80 to $128.85. Gold futures were up $14.40 to $920.20 an ounce. The currency markets were acting as another drag, with the dollar tumbling by 1% against both the euro and British pound, while losing 0.6% to the yen at 103.68. The dollar index, which stacks the greenback against a basket of its major counterparts, was off 0.9%.
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