Yet more inflation fears

There was no respite from inflation fears yesterday. Reuters reports US producer price inflation and more:

U.S. producer prices rose just 0.2 percent last month as food costs fell, but prices outside of food and energy rose a steeper-than-expected 0.3 percent. Retail sales in May rose just 0.1 percent, matching Wall Street expectations, with declines in auto, furniture and building material sales...

Meanwhile motor vehicle and parts sales fell 1.6 percent, the largest drop since February. Excluding cars and parts, retail sales rose 0.5 percent, in line with expectations.

When cars, parts, and gas were excluded, retail sales rose 0.3 percent...

A separate Commerce Department report showed U.S. business inventories rose a smaller-than-expected 0.4 percent in April, tempered by a drop in the stocks of total retail trade and motor vehicles and parts.

However, a paper by Edward Liu and Bill Cara argues that "the growth rate of the PPI will actually turn negative in November – not increase as traders believe today".

The growth rate of the production price index is expected to descend steadily... Such a decline in PPI would be very helpful in stabilizing the U.S. consumer prices. The growth rate of the consumer price index will likely moderate significantly and maintain at the current level or even decline...

According to the RiskFile model, the deceleration of the economy might be more serious than most economists expect... While not going into recession, we believe that the U.S. GDP will fall to a level of just over +1.0 pct in 1Q07.

Perhaps so. At least in the UK, economists appear relatively unconcerned about the latest rise in the inflation rate.

The Office for National Statistics said consumer prices rose 0.5 percent in May, taking the annual rate to 2.2 percent, the highest since October and above forecasts for 2.1 percent.

But analysts said that did not necessarily mean interest rates would soon rise.

The Bank's Governor Mervyn King, who would have had advance warning of the figures, said late on Monday that inflation data can be volatile and higher utility bills would also have a moderating impact on consumer spending.

"Soothing comments on inflation from BoE Governor Mervyn King last night should help to take some of the sting out of this report," said Gavin Redknap, economist at Standard Chartered Bank.

"The result still keeps inflation just about on course to meet the Bank's expectations for the end of Q2, so immediate policy implications should be somewhat limited."

In any case, in Germany at least, investor confidence is declining. From Bloomberg:

German investor confidence fell for a fifth month in June on concern that rising interest rates and near-record oil prices will cool growth in Europe's largest economy.

An index of institutional and analyst expectations dropped to 37.8, the lowest since July 2005, from 50 in May, the ZEW Center for European Economic Research said today in Mannheim. Economists expected a decline to 45, the median of 34 estimates in a Bloomberg News survey showed. The measure has been retreating since reaching a two-year high of 71 in January.