Fears of inflation consumer up? Not a concern, SF Fed says

CHICAGO  - anxiety of growing consumer prices are largely to the increase should not trigger a response in the fight against inflation in the US Federal Reserve, according to research from the Monday of the San Francisco Fed.

This is because consumers are not particularly well to the inflation forecast, according to the research, published in the last economic letter of the regional Fed Bank. Households tend to make their worst assumptions about future when inflation spike of fuels and food products, as they have in recent months.

Makers watching closely, inflation expectations because when people expect higher prices they often change their behavior so as to make these expectations a prediction.

But research suggests that they are probably safe ignore the tonnage of the survey widely followed by at least one of the fears of domestic inflation. He compares forecasts inflation at Thomson Reuters/University of Michigan consumer sentiment survey against actual inflation over the past eight years.

These recent survey data show households now expect inflation to about 4.5 per cent on average over the next 12 months, a year expectation big jump last of 3 percent.

The increase is probably due to the sharp rise of the food and energy prices that households are particularly sensitive, Counsellor of research of San Francisco Fed Bharat Trehan said.

Households in the survey of inflation provided an average of 1.1 percent over the past five years, when prices of commodities have been particularly unstable, Trehan has shown.

Consumer inflation expectations has also increased in 2008, when energy prices similarly enriched, but actual inflation eventually falling, not rising.

"Households seem to respond to recent evidence of inflation in a way that is not justified by actual inflation dynamics," Trehan said in the document. "The poor performance of forecast militates against reacts strongly to the recent increase of household inflation expectations."

Data outputs a week and a half show U.S. consumer prices have increased to a maximum of 2 1/2 years of 3.2% in the 12 months to April.

The pace of food and fuel price rises slowed since the month of before, however, suggesting inflationary pressures can be achieved.

Most Fed officials expect increases in the prices of products of short duration, a view born this month decrease in oil prices. San Francisco Fed President John Williams earlier this month it said it believes that inflation will begin falling in the workplace of the year, sinking well below unofficial target of 2% of the Fed next year.

Primary dealers interviewed by Reuters, last week see the price index rose by 3% in the fourth quarter.

Consumer inflation can be achieved, economists say

WASHINGTON - After weeks of pain at the gas pump and the grocery store, the worst appears to be over.

Oil prices have fallen, with gas soon to follow. Demand for farm commodities, like the corn used in everything from cereal to soda, has dropped. And businesses remain slow to pass along higher costs because customers aren't ain't getting raises and might walk away.

Inflation may be approaching its peak.

"I think the bulk of the big price increases are over," said Gus Faucher, an economist at Moody's Analytics.

Lower prices — or at least a break in their steady rise - will come as a big relief. Consumer prices rose 3.2 percent for the year ending in April, the most since October 2008. Higher food and gas prices drove the gains.

Excluding those two categories, prices rose 0.2 percent in April. They rose 1.3 percent over the past year, below what the Federal Reserve considers healthy. Economists study this figure, known as core inflation, because food and energy prices are volatile.

Some inflation can be healthy for the economy because it encourages people to spend and invest rather than sitting on their cash. More spending drives corporate growth, which makes businesses more likely to hire people.

Inflation was a much bigger concern in March. Oil prices were rising steadily because of the unrest in the Middle East. Some feared gas could reach $5 a gallon, leaving Americans much less money to spend on cars, appliances and vacations. That kind of drop in spending would squeeze corporate profits, delay hiring - maybe even tip the economy back into recession.

But last week, oil prices sank by the most in two and half years. Americans drive less when gas prices get high enough, and concerns about slowing energy demand sent oil prices tumbling - from $114 at the start of May to about $97 on Friday.

Now the nationwide average for gas has leveled off. On Friday it was just under $4 a gallon, where it's been for the past week. Many analysts say it could drop to $3.50 as soon as next month.

The prices of milk, bread and chicken won't fall as fast - it could take six months or longer, analysts say - but they could decline by the end of the year. That's because the price of corn and other grains have fallen. Overseas ranchers are using less corn for feed, and U.S. farmers have planted more.

Food prices had risen in March at the fastest rate in three years.

Changes in grain and corn prices take longer to filter down to grocery stores than changes in oil prices do to the gas pump. That's because grain and other commodities represent a smaller fraction of food costs in the U.S. than in other countries. By contrast, oil prices are the biggest factor in the cost of gas.

There was evidence in Friday's government report on consumer prices that food inflation will slow by year's end. Gas prices rose 3.3 percent in April, a steep rise but the smallest since November. Food costs rose 0.4 percent, half as fast as in March.

Gas accounted for about half of overall inflation in April. So a decline in the price of oil should hold down the increase in consumer prices for May.

Slower inflation would leave Americans with more money to spend to stimulate the economy, including keeping more of a cut in Social Security taxes that took effect in January. Economists expect the increased spending to raise overall economic growth to an annual rate of 3 percent in the second half of this year. In the first three months of this year, it was 1.8 percent.

The oil price drop should bring prices down for a range of products, including chemicals, plastics, even roofing materials. Higher diesel fuels had contributed, for example, to a sharp increase in commodity costs for Procter & Gamble. In response, the company raised prices for Gillette razors, Duracell batteries and Bounty paper towels.

Falling corn prices should also help. Corn is widely used as an animal feed, so when it became more expensive, meat and dairy prices went up, too. Corn is also used in sweeteners for soft drinks and snacks, so those could become less expensive.

Prices of corn, wheat and other grain jumped last summer after bad weather damaged harvests in countries from Russia to Australia to Brazil. Demand for corn from producers of ethanol, a corn-based fuel, rose also. The price of a bushel of corn reached a record high of $7.76 on April 11.

But supply worries have since eased. An Agriculture Department report this week predicted that U.S. corn supplies will rise later this year, based on the drop in demand overseas and the larger crop expected next year. They had earlier been forecast to fall.

Demand from fast-growing developing countries such as China and India may also slow as their central banks raise interest rates to try to slow inflation. That should also slow their growth and, in turn, may cool their demand for commodities.

It takes about six months for changes in commodity prices to affect consumers. Consumer food prices didn't start to increase until January, well after commodity costs began rising last summer.

Analysts also say many companies were slow to pass along those increases for fear of spooking price-sensitive shoppers. Wage growth has been weak. Average hourly pay rose an anemic 1.9 percent in the last 12 months, less than the rate of inflation.

Some companies probably won't lower prices much, if at all. Airlines, for example, lost money because of the steady rise in the price of oil. If you bought a plane ticket three months ahead of time, your flight was much more expensive for the airline when you flew than when you bought.

"They will resist any pressures to reduce fares or fuel overloads," says independent airline analyst Robert Mann.

The average price of a round-trip ticket during the first three months of this year was $341 before taxes. That was up 10 percent from the same period last year. Airlines paid 27 percent more for fuel from January through March than they did a year earlier.

But there will be relief in the prices of other things. The cost of new and used cars rose in April, but some of those increases were related to temporary parts shortages caused by the earthquake and nuclear disaster in Japan.

Inflation will remain a risk. Commodity prices are volatile and subject to global turmoil. As recently as last winter, economists were worried that inflation was too low. In October, the core price index had risen only 0.6 percent in a year, and the Fed expressed concern about the risk of falling prices.

China needs to raise rates to tame inflation: China central bank

BEIJING - China needs to raise interest rates to rein in inflation, which is likely to remain high in the coming years due to rising prices for world raw materials, Li Daokui, Advisor to the Bank of Chinasaid Monday.

But Li, an academic member of the Central Bank's monetary policy Committee, warned against the increase in interest rates too quickly that could attract more hot money into the country.

"China is a unique and huge economy and too much attention is on our economy, so that the interest rate must be carefully managed." "If interest rates are too high, there will be much speculative capital inflows," he said at an economic forum.

The second world is likely to increase 9, 3-9, 4% in 2011 despite the tightening of policy and maintain an average growth of 9 per cent over the next five years, said Li.

"China has entered a new phase of reasonably rapid growth, and I think the economy will maintain a rapid growth over the next five years," said.

A survey of economists showed that they widely expect the world's second economy to extend from 9.5% in 2011, slight decrease of 10.3% last year.

China has lifted requirements Reserve Bank eight times and raised interest rates four times since October to put a lid on rising prices, even after the sign that the economy slowed.

Li also said narrowing trade surplus of China could help ease of foreign pressure on the country to let the yuan rise at a faster clip.

China has posted a trade surplus of 11.4 billion in April exports hit a record, while more than expected lower imports, oscillating back a trade deficit in the first quarter.

But of the higher import costs, with the Government's efforts to rebalance the economy for domestic consumption to reduce its dependence on exports, could lead to a smaller for 2011 trade surplus of $ 183 billion last year.

The China Securities newspaper Monday quoted Li as predicted that China's trade surplus will fall to 100-120 $ billion billion this year.

China population rotating to stimulate inflation Economist: State

BEIJING - the census results of the China shows the world's second economy is almost a population pool that will be increases in salary auger, the rise in inflation and growth relatively low, an economist prominent Government said in comments published Thursday.

BA Shusong, a senior economist at the State Council Development Research Center, which advises the central Government, said the data of the Census of 2010 published last week, with a clutch of other statistics, showed China's abundant labour supply would begin decreases rapidly.

"Current data show China has already crossed the turning point of Lewis, and at the same time, the window of the demographic dividend will soon close", Ba wrote in the economic information daily.

BA was referring to the victory of Nobel Laureate economist Arthur Lewis theory which, as a developing country, modernizes, salaries of workers begin to rise quickly once rural labour surplus shrinks to the point that the emerging labour shortages.

"The shortage of rural migrant workers since 2004 were no blip passage, but the signal that a major turning point is at hand - a transformational trend", wrote the Ba.

Census data published last week showed that the proportion of young Chinese is shrinking as the population grows.

The proportion of Chinese aged 14 or younger was 16.60%, a fall of 6.29 percentage points of the number in the 2000 census. Persons aged 60 or older increased by 13.26% of the population, 2.93 percentage points.

Many economists predicted that China is entering a demographic transition that produce important economic consequences. But the comments of Ba, which advises central decision-makers, has shown how these concerns may feed in the planning of inflation, growth and consumption in the years to come.

Converging consequences of a surplus of work disappear and the transition to an aging population with more retirees are not dependent on their family and social protection will be a "huge challenge" for China, the Ba has written.

He wrote "increase in the wages of the workers will push the heart of cost so that the low inflation possible when the supply of labour was abundant will be untenable,". "Second, after crossing the turning point, economic growth will be experience slowing systemic."

China has about 242 million rural residents who work off the farm, and approximately 153 million of them are migrants working outside their city of origin.

Revenues of the country, rural areas in China increased by 10.9% in 2010, exceeding an increase of 7.8% of the urban income, reflecting increase in wages for hundreds of millions of migrant workers.

The China price index increased by an annual 5.4% in March, the highest increase of almost 3 years, and some analysts have said that the Government faces a difficult task now to its target of annual inflation of 4 percent, the costs of work increases and rising prices of raw materials and fuel.

BA, stated that China need more even distribution of income to ensure that the consumer can consolidate economic growth.

"Will slow the pace of growth of investment, and the driver of economic growth will rise from investment to consumption," wrote.

Fed ready to fight inflation, but not yet the time

LAS CRUCES, New-Mexico (Reuters) - remains of while Inflation under control, despite the high prices of oil, but the Federal Reserve stands ready to increase interest rates if the price pressures seem to be getting of at the outset, the Fed officials said Wednesday.

In his first speech as President of the San Francisco Fed, John Williams, was argued that soaring commodity costs will be probably transient.

"The economy is now facing numerous difficulties, but I do not believe that hyperinflation is one of them," said Williams, adding that it would not prejudice a possible need for additional bonds purchases in the future.

In response to evidence of economic weakness last summer, the US Central Bank in November announced that it would buy $ 600 billion in Treasury bonds to reduce borrowing costs in the long term and support the recovery.

In some of the first public speeches by Fed officials since a political meeting from April 26-27, in which the Central Bank said that it would complement these purchases on schedule at the end of June, decision makers who spoke Wednesday explained why they are in no rush to pull back ultra-loose political currency soon.

Eric Rosengren, Dove President of the Boston Fed, who is a voter this year on the Federal Committee of market freedom of establishment of policies, many struck the same note: Williams, saying that a return to inflation in the years 1970-style was not likely.

He said that tame wage growth and high unemployment help cushion some of the inflationary impact of food and energy higher, keeping the consumer inflation expectations under control.

An increase in inflation expectations can be self-fulfilling if it leads workers to demand higher wages.

But with high unemployment rates, workers have little power to demand wages more high because they can be easily replaced.

MARKET OF THE HEALING WORK SLOWLY

Another official of the U.S. Central Bank, Atlanta Fed President Dennis Lockhart, has experienced a growth in employment stable but modest about 200,000 jobs a month through the rest of this year after a slow period.

"It may take three years before the size of the market for the work of the country reached prerecessionary levels," he said in a speech in Atlanta.

The Department of the work of the United States will report figures for non-agricultural in April payrolls Friday. Economists expect that 186 000 jobs have been added in April, a Reuters poll.

Rosengren said of increases in inflation in the overall U.S. due to shock of offer since the mid-1980s were generally temporary, a model that should play again.

"We should the impact on inflation to be transient - and that total inflation converge on core inflation, which remains well below 2 percent," he said.

The U.S. consumer price index jumped 2.7% in the year to March. But the so-called core CPI, which excludes the cost of food and energy more volatile and is an indicator of the underlying price trends, rose by only 1.2%. The Fed informal target is 2%.

Not all the Fed officials are all also optimistic on inflation. Richard Fisher, President of warmongering Dallas and also an elector FOMC fed this year, cited concerns over the rise in the price.

"The number overall (inflation) have got a little stout," he told reporters after a speech. "We must carefully watch" how to change inflation expectations.

However, it stops far the appellant to increases in short-term interest rates.

And Lockhart, the Atlanta Fed, said no monetary policy tightening is imminent.

"It's a little premature now to anticipate that it will happen immediately," he said.

The sequence and pace of the actions the Fed when it is time to return on its easy money policy will depend on economic conditions at the time, said Lockhart.

READY TO FIGHT INFLATION

If inflation starts to act, officials have said that the Fed has the tools and the desire to address the threats of price by quickly bringing interest rates.

"I am determined to respond decisively and as with force as necessary", Rosengren the Boston Fed said, "to ensure that long-term inflation expectations remain stable and that food and energy prices are not passing through other awards".

In response to the worst recession in generations, the Fed reduced the official borrowing costs to effectively zero and put in place an array of unorthodox to heal the credit markets frozen loan facilities. Many of these measures were a component such as the improvement of the conditions of the market, but buying controversial asset to reduce long-term rates continued.

"If it is necessary to inflationary pressure meter, I will be among the first to defend the conduct of a part of the stimulus that we provided," said Fisher.

Fisher cited repeated orders manufacturing and capital goods as not only an indicator short term positive economic momentum, but also potentially a sign that the US economy has finally been away an undue on consumer spending.

"They are precursors to necessary rebalancing," he said.

(Additional reporting by Ros Krasny to Boston, Ann Saphir in Los Angeles, and Joe Rauch Atlanta; additional writing by Mark Felsenthal.) (Editing by Leslie Adler)