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Email Story to a Friend July 19, 2006 Fed may have lots to say, little to do with inflation By Joel Havemann Los Angeles Times WASHINGTON — When Federal Reserve Chairman Ben S. Bernanke testifies about the economy to a Senate committee Wednesday, all eyes and ears will focus on his view of inflation and any hints about whether he will keep raising interest rates to curb it. But some analysts think the Fed has less influence over inflation these days, making higher interest rates less effective as a tool to control it. They fear that further rate hikes could end up slowing the economy and hurting consumers, without reducing inflation. Today's inflation, these economists believe, is driven substantially by rising prices of commodities and basic materials — oil as well as copper, aluminum, steel and others. And that commodity inflation, they argue, is the result of forces largely beyond the control of high U.S. interest rates: political volatility in the Middle East, for example, and rising demand for materials by the rapidly growing economies of China and India. "Most of our inflation is in commodities, and it is driven by global tensions and growth in foreign countries," said David Kelly, chief economist for Putnam Investments in Boston. "It's outside the reach of U.S. monetary policy." Monday's news that China's economy surged by an unexpectedly robust 11.3 percent in the second quarter underscores the dilemma. The Fed can do little to control China's growth. It is up to the Chinese, not the Fed, to raise their interest rates to rein in their overheated economy, experts said. Advertisement The Fed and Bernanke will get fresh data on inflation Wednesday morning when the Labor Department releases the consumer price index for June. In a preview of that data, the department reported Tuesday that producer prices — measuring prices at the wholesale level — rose an unexpectedly strong 0.5 percent in June. That was propelled by a 1.4 percent jump in food prices, which in turn were boosted by a 15 percent increase in fruit. Excluding the volatile food and energy sectors, so-called core producer prices rose only 0.2 percent, in line with economists' expectations. Economists are watching the behavior of the core price indexes — without food and energy — for signs that the recent run-up in oil and natural gas prices will spill into the costs of goods and services produced with large amounts of fuel. So far there have been few such indications. Ian Shepherdson, chief U.S. economist for High Frequency Economics, a consulting firm in Valhalla, N.Y., explained that the cost of goods accounts for only about one-quarter of the core consumer price index. For typical manufacturers, he said, commodities contribute only about 10 percent of costs, and so commodity price increases can do only limited damage to the cost of goods apart from food and energy. But for most Americans, food and energy are a large and growing share of their budget. And to the extent that their prices are set overseas, there is relatively little that the Fed can do to reverse the trend, some economists said. Mail Tribune Home | Local News | Sports | Business | Obituaries | Life | Opinion AP News | Archives | Site Map | Community | Classified Copyright © 1997-2006 Mail Tribune, Inc. All rights reserved. Privacy Policy | Terms & Conditions | Website Feedback www.bingo.com Home Security Systems Trunks, Footlocker Custom Build Computers Discount Hotel Reservations --> online casinos news Send Flowers California Casinos GMAT Prep Windermere Van Vleet Sports Equipment Entertainment Guide --> Online Casino Fundraisers Sudoku Online Casinos Canada Ashley Furniture HomeStore Advertisements Advertisement