Transcripts

Hurricane Katrina Being Blamed For Stirring Up Inflation

SUSIE GHARIB: Is higher inflation around the corner because of hurricane Katrina? Even though wholesale gasoline prices fell below $2 a gallon today -- for the first time since the storm slammed into the Gulf coast -- prices at the pump have not come down nearly as fast. Now that`s driving costs up for many American businesses. And if they raise prices, that could drive up inflation. Erika Miller reports.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: It`s no secret that gasoline prices have soared as a result of hurricane Katrina. But don`t be surprised if your grocery bill also goes up, due to supply disruptions and higher transportation costs.

MICHAEL MORAN, CHIEF ECONOMIST, DAIWA SECURITIES: Many companies are being pressured by high energy prices and are tempted to pass along these price increases. And the economy is getting to the point where it`s strong enough where executives are going to find that they can pass these cost increases on.

MILLER: The prices for coffee, bananas, chicken and oysters have already risen as a result of the hurricane, and experts say corn and grain could be next. Katrina walloped the Louisiana seaports, and closed off parts of the Mississippi River. That leaves many farmers with no easy access to global markets, with less than a month before the start of the corn harvest. It may also cost you more to fix up your home or buy a new one as a result of Katrina. Lumber prices have also been rising in anticipation of a massive rebuilding effort in the Gulf coast states. But it`s too early for Katrina`s impact to be seen in inflation data. Take for example today`s report on prices of imported goods. They rose 1.3 percent in August, due to higher energy costs. Economists say it will be at least another month before Katrina`s impact will be seen in inflation data. But it`s clear: inflation is becoming more of an economic threat.

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR`S: The big threat to economic growth is the direct cost of energy. It`s really the fact that consumers are spending more and more money heating their houses, filling up their gas tanks. That`s really where most of the loss is going. The additional problems you have, in terms of higher inflation, in the goods sector because of the higher transport costs is a much smaller problem, but probably one that is going to increase.

MILLER: Some economists think a rising inflation threat will give the Fed even more reason to raise rates at its September 20 meeting. But others think the central bank will pause at that meeting to better assess Katrina`s impact. Erika Miller, NIGHTLY BUSINESS REPORT, New York.