Bernanke's window

20 November 2008 By Martin Hutchinson

Producer and consumer price indexes declined in October. While that owed much to declining commodity prices, inflation won t return until output bottoms. Thus the Fed can print money until the economy stabilises. Then it must be ready to reverse course quickly.

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The US Consumer Price Index was down 1.0% in October; the core CPI (excluding food and energy) was down 0.1%. The Producer Price Index was down 2.8%; the core PPI was up 0.4%. Over the year to October 2008, the CPI was up 3.7%, the PPI 5.2%, the core CPI 2.2% and the core PPI 4.4%.

The Fed has reduced its forecasts for 2009 US gross domestic product growth to a range of 0.2% to 1.1%, and decreased its estimate of personal consumption expenditure inflation to a range of 1.32.0%.

While industrial production was up 1.3% in October, after a 3.7% drop in September, the Philadelphia Fed's index was down 1.8 points to minus 39.3 and the Conference Board's Leading Indicators were down 0.8%. The NAHB Housing Market Index fell 5 points to 9, a record low, and housing starts totalled 791,000, a record low since data collection began in 1959.

Since the Fed cut its Fed funds target to 1% October 29, the actual rate has traded between 0.22% and 0.38%, bottoming on October 31 and trending upward since then.

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