James Turk: Inflation is rising and the trend for gold remains up

Section:

Bill Coming Due

By Paul Tharp
New York Post
Friday, May 14, 2004

http://www.nypost.com/business/20852.htm

Price tag shock is heading into stores by Memorial Day
due to soaring wholesale prices, with dairy prices
jumping to their highest levels in 58 years.

Retailers also are suffering a new shopping slump after
their biggest boom in a year and could get hit harder
when higher prices kick in, analysts say.

Labor Department data yesterday show factory and
producer prices jumping more than twice the level that
economists had expected -- due primarily to soaring
crude oil and a shortage of raw materials being
devoured at China's booming factories.

Some companies want to pass added costs to
consumers right away, such as paint giant
Sherwin-Williams, which in the past year has spent
about a quarter more for its petroleum used in
paint-making.

Industry data are as grim as the government's, with
the private Institute for Supply Management saying
that prices paid for raw materials surged in April at
their highest pace in 25 years.

The government said prices of steel-mill products, for
example, are at their highest rate in 30 years, surging
6.3 percent in April alone, the biggest monthly jump
since a 6.8 gain in July 1974.

The list of double-digit jumps in wholesale prices in
the past year is long. Refrigerators are up 13.3 percent;
animal feed, up 31.8 percent. Chicken is up 18.3
percent, cooking oil's up 28 percent and eggs are
23.3 percent higher.

Analysts blame soaring oil prices, soaring above the
$40-a-barrel level this week.

"These prices are economy wreckers," said Peter
Beutel, energy analyst at Cameron Hanover. "The
emergency is here and now."

Some economists fear a domino effect from the
wholesale price squeeze.

Major airlines already are passing along a fuel
surcharge on cargo rates, a boost of as much as
one-third, and are planning similar hikes for
passenger fares, say industry sources.

Producer prices in April rose 0.7 percent, higher
than the 0.3 percent economists expected. Retail
sales last month skidded 0.5 percent following an
8 percent gain the prior month. Consumers avoided
purchases of cars and clothing -- two of the largest
spending categories -- the Commerce Department
said.

The agency, in an effort to put a calming effect on the
way consumers' paychecks are being eaten up, said
that if cars and clothing were carved out of its data,
retail sales would have gained a healthy 9.4 percent
in April.

Likewise, if food and energy wholesale prices, which a
ccount for two of the biggest spending items among
consumers, were carved out, the wholesale inflation
rate would have been a tame 0.2 percent.

Economists are bracing for possible surprises in
today's report on how much consumer prices actually
rose in April.

Two other reports today, on business inventories and
industrial production, will help market watchers make
a better guess on the Federal Reserve's timing to
hike interest rates.

Mortgage rates jumped sharply. The 30-year fixed rate
rose to 6.34 percent from 5.38 percent last week,
which could hamper the housing boom. Lumber costs
also are up 22.2 percent in the past year.

Rates for 15-year, fixed-rate mortgages rose to 5.72
percent from 5.47 percent last week, while the
one-year adjustable rate rose to 3.90 percent this
week, vs. 3.76 percent last week.

Meanwhile, the jobs recovery showed signs of slowing.
Labor Department data said first-time jobless claims
came in higher than expected, suggesting that the
Fed may be less inclined to boost interest rates early.

First-time filings for state unemployment benefits rose
by 13,000 to 331,000 last week. Economists had
expected claims to rise to 321,000.

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