August 14, 2006 01:45 PM
Prices Rise Only Slightly, Easing Fears About Inflation
Excerpt: Consumer prices barely rose in January, the government said on Wednesday, but the Federal Reserve signaled its intention to keep nudging up interest rates in the months ahead.
Consumer prices barely rose in January, the government said on Wednesday, but the Federal Reserve signaled its intention to keep nudging up interest rates in the months ahead.
Consumer prices edged up 0.1 percent in January, adjusted for seasonal factors, after being flat in December. The mild increase soothed investor anxieties about inflation, even though it stemmed in part from a temporary dip in oil prices that has since reversed.
The consumer prices report came as newly released minutes from the Federal Reserve's policy meeting on Feb. 1 and 2 suggested that Fed officials were slightly less worried about inflation than they had sounded in January.
The minutes suggested that Fed officials would continue to slowly raise short-term interest rates, but there were fewer hints about the need to speed the process of rate increases in response to inflationary pressure.
The minutes were conspicuously silent about whether the Fed should continue to announce its intention to raise rates at a "measured" pace, a code phrase generally assumed to mean quarter-point increases at every policy meeting until at least this summer.
But analysts said Fed officials had differing views about what is ahead. At least some officials are worried about inflationary pressures caused by the dollar's falling value, slowing productivity growth and rising wage costs.
Jack Guynn, president of the Federal Reserve Bank of Atlanta, told executives in Alabama on Wednesday that the central bank "still has a ways to go in recalibrating monetary policy" - a pointed warning that the Fed was not finished with its rate increases.
At the February policy meeting, Fed officials voiced some of the same concerns as they had in January about the falling dollar; the record trade deficit, which topped $600 billion in 2004; and a federal budget deficit that is on track to hit $427 billion this year.
But the tone of the new Fed minutes was much more muted than it was in January, omitting previous expressions of concern about "excess speculation" in real estate as well as in financial markets.
"Participants thought that the rate of core inflation likely would remain low and stable, assuming further removal of policy accommodation," the Fed said in its summary of the meeting, referring to its strategy of gradually raising interest rates from the lows reached in 2003 and 2004.
In previous months, the minutes have noted that some policy makers wanted to abandon the implied commitment of raising rates at a "measured pace," arguing that the central bank needed more flexibility.
The Fed chairman, Alan Greenspan, conspicuously avoided using the phrase in two days of testimony in Congress last week, saying only that interest rates are still "fairly low."
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