Transcripts

Stocks Still In Sell Mode As Inflation Fears Get Cranked Up

SUSIE GHARIB: Here on Wall Street today, investors continued to yell "sell." The Dow dropped 86 points, and the NASDAQ fell for the eighth straight session, losing 18 points. Driving today`s sell- off, new data showing an increase in wholesale inflation and a retail sales report that signaled a weakening economy. As Suzanne Pratt reports, many economists say today`s data supports the likelihood the Federal Reserve will raise rates again at the end of the month.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: Fresh data on wholesale prices reinforced the belief for many today that the U.S. has a growing inflation problem. Just how big a problem is still a topic of hot debate on Wall Street. The producer price index rose a relatively tame two-tenths of one percent in May, following a big gain in April. But prices paid to U.S. producers for goods other than energy or food, the so- called core PPI, rose three-tenths of one percent in May, the largest increase since February. The gain was more than economists expected and proof that energy prices are adding cost pressures throughout the production pipeline. Still, others say investors need to look at more than just the May data for a more complete inflation picture.

MICHAEL MORAN, CHIEF US ECONOMIST, DAIWA SECURITIES: If you focus on the longer term, say over the past three months or past six months or past year, you still see fairly tame readings on the core PPI. The increase we had in the latest month, three-tenths, was just a small offset to the one- tenth reading we had in each of the prior two months. So, on balance I think we`re still seeing restrained readings on the core PPI.

PRATT: Meanwhile, retail sales rose only slightly in May, raising red flags about a potential slowdown in consumer demand and the overall economy. Retail sales inched up one-tenth of one percent last month, although April was revised higher than originally reported.

JAMES GLASSMAN, SR. ECONOMIST, JP MORGAN CHASE: The areas that were really quite soft, building materials and anything related to housing-- that`s the area that`s really seeing significant pullback and we`re going to see more of this in the housing indicators this year. So, lots more confirmation of a slowing consumer.

PRATT: And in spite of the weakness in retail sales, most economists believe the Federal Reserve will still hike rates again when policymakers meet on June 28 and 29.

MORAN: I think the Fed will raise interest rates at the end of June. They sent some strong signals with public comments that they are prepared to raise interest rates, and I think the economy is strong enough to warrant that. I think the inflation numbers, although still low, are stirring enough that the Fed will want to take some precautionary steps.

PRATT: Tomorrow, financial markets and the Federal Reserve will get another look at the inflation picture with the release of the consumer price index for May. Experts say an increase of two or three tenths of one percent pretty much guarantees a rate hike at the end of the month. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.