lunes, 22 de junio de 2015

lunes, junio 22, 2015

Heard on the Street

Dollar Daze Not Over for Inflation

Low inflation levels look likely to persist, with businesses having little ability to raise prices.

By Justin Lahart

June 18, 2015 12:22 p.m. ET

Services prices, excluding energy-services prices, were up 2.4% in May from a year earlier. A Wyoming barber shop is seen here.Services prices, excluding energy-services prices, were up 2.4% in May from a year earlier. A Wyoming barber shop is seen here. Photo: Dan Cepeda/Associated Press


Someday inflation will pick up. But someday won’t happen for a while longer than some companies might hope.

The Labor Department on Thursday said its consumer-price index rose 0.4% in May from April, leaving it flat with a year earlier. The core CPI, which excludes food and energy to better capture inflation’s underlying trend, rose by just 0.1%, putting it up 1.7% annually.

A big part of why core inflation remains so low is the pressure the dollar has put on import prices.

Even though the greenback has weakened over the past few months, it is still 17% higher than it was a year ago against the Federal Reserve’s trade-weighted basket of other major currencies. Within the CPI, prices for core goods were down 0.3% from a year earlier last month.

The dollar’s strength should continue to feed into consumer prices for some time yet. Consider imported components that first get contracted for, then get built, then spend time on a boat and then get put together in the U.S. Moreover, weakness in China’s economy may prompt Chinese companies to step up exports, putting more pressure on import prices.


Service prices, which aren’t as affected by currency moves as goods are (prices for haircuts in Italy don’t affect U.S. barbers), are showing more heat. Excluding energy services, they were up 2.4% in May from a year earlier. But the pace of gains in service prices has been steady—they have been gaining about 2.5% annually for the past four years. So even though the job market has been getting a lot better lately, boosting consumers’ spending power, businesses’ ability to raise prices is still seriously limited.

For financial markets, low inflation is mostly a reason to cheer, since it will keep the Fed from raising rates too swiftly. But investors also need to be on the lookout for companies that are facing rising costs. These could be in for a serious squeeze.

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