Tuesday Economics Roundtable

From Marketwatch:

U.S. June PPI up 0.5%, core PPI up 0.2%

U.S. producer prices rose by a larger-than-expected 0.5% in June, but core inflation increased 0.2% as expected, the Labor Department reported Tuesday. Higher energy and food prices accounted for most of the gain in June in the producer price index for finished goods. Energy prices rose 0.7% in June. Food prices rose 1.4%, the most since October 2004. Prices of crude materials fell 1.7%, while intermediate goods prices rose 0.7%. Core intermediate goods prices rose 0.8%. The 0.5% gain in the PPI was much larger than the 0.2% expected by economists surveyed by MarketWatch. The core rate was exactly as predicted.

From Bloomberg:

China Economy Grows 11.3 Percent, Most in a Decade

China's economy grew 11.3 percent in the second quarter, the fastest pace in more than a decade, and the government said it will clamp down on lending and investment.

Spending on factories and real estate accelerated in June, the statistics bureau said today, helping gross domestic product grow faster than the 10.4 percent median forecast among 30 economists surveyed by Bloomberg News. It was the biggest expansion since 1994, when the economy was a quarter the size.

The figures added to speculation the central bank will raise lending rates for a second time this year and order banks to rein in credit in the world's fastest-growing major economy. China may also allow faster currency gains to curb a trade surplus that's flooded the economy with cash and strained relations with the U.S.

``We are concerned about the overheating situation,'' said Masahiro Kawai, head of the Asian Development Bank's office of regional economic integration. ``There is an even stronger case for a tighter monetary policy and a more accelerated pace of the yuan's appreciation.''
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``Inflation is likely to surprise on the upside,'' said Liang Hong, an economist at Goldman Sachs Group Inc. in Hong Kong. ``If consumer prices start to show much more momentum, the government's tightening doses will be stronger.''

From Bloomberg:

U.K. Inflation Accelerates to Match Nine-Year High

Inflation in the U.K. accelerated more than economists expected in June as energy costs climbed, matching a nine-year high and increasing the prospect that the Bank of England will raise interest rates.

Consumer prices rose 2.5 percent from June 2005, the same level as in September, which was the highest since the series began in 1997, the Office for National Statistics in London said today. The reading exceeded the 2.3 percent median prediction in a Bloomberg survey of 32 economists. Prices increased 0.3 percent in the month.

The inflation rate has exceeded the Bank of England's 2 percent target for two months as record oil prices push up gasoline costs, household bills and factory goods prices. Investors raised bets on an increase in the benchmark interest rate by the end of the year after today's report.

``Inflation is certainly higher than the Bank of England was expecting,'' James Knightley, an economist at ING Bank NV in London, said. ``It's all down to energy at the moment. There's risk of a rate hike later this year, probably in November.''

Investors expect the bank will lift its benchmark rate a quarter-point to 4.75 percent this year. The yield on the interest-rate contract maturing in December rose 6 basis points to 4.96 percent as of 12:07 a.m. in London.