Transcripts

Inflation Ups & Consumer Confidence Downs

SUSIE GHARIB: A double dose of economic news today, inflation is rising while consumer confidence is falling. Wholesale prices surged a full percent last month and rose almost 7 1/2 percent over the past year, the fastest pace since 1981. On top of that, consumer confidence in February dropped to its lowest level in more than 14 years. As Erika Miller reports, today's data puts even more pressure on an already troubled economy.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Life's necessities were a lot more expensive at the wholesale level last month. Food, energy and medicine all rose sharply helping to push up the producer price index a whopping 1 percent in January. That's bad news for consumers because it means more pressure on merchants to pass along higher costs. Inflation is also bad news for the economy, coming at a time when growth is weakening. However, economist Anthony Chan does not see the return of 1970's-style stagflation.

ANTHONY CHAN, CHIEF ECONOMIST, JPMORGAN PRIVATE CLIENT SERVICES: I think in the past, when we saw stagflation, we always thought of inflation in double digits and we would see unemployment rate approaching levels that are perhaps twice as much as what we're seeing today. So to argue that stagflation is a concern is clearly something that is premature.

MILLER: That wasn't the only troubling economic report today. Consumer confidence plunged in February to its lowest level since November 1993. Moody's economist John Lonski says a variety of factors are to blame.

JOHN LONSKI, CHIEF ECONOMIST, MOODY'S INVESTOR SERVICE: Consumers not only have to grapple with fewer job opportunities, expectations of slower income growth, higher prices for food and energy. They also have to deal with an unprecedented bout of home price deflation. So, it's perhaps not surprising that consumer confidence is sinking.

MILLER: The big question on Wall Street is how much weight the Federal Reserve will give today's data. Many bond traders think rising inflation will encourage the Fed to start raising interest rates as soon as the economy stabilizes. But most economists are still betting the Fed will cut rates a half a percentage point at its next meeting March 18.

CHAN: For the time being, I think they are going to tilt towards having a greater concern with what happens in the economy. And, so that means that when the Federal Reserve meets next time, I don't think that they at all will be influenced by what's happening on inflation.

MILLER: The only consolation for consumers is that it usually takes a while before higher wholesale costs push up retail prices. Many stores try to resist raising prices as long as possible for fear that customers will shop elsewhere. Erika Miller, NIGHTLY BUSINESS REPORT, New York.