Lettuce link to US inflation rate
Saturday 13 May 1995
Flashing the second inflation danger signal this week, yesterday's figures meant a further retreat of lingering hopes that the Federal Reserve might cut interest rates later this month, and helped send the dollar soaring.
Floods in California in March affected food prices last month. Apart from lettuces, other fresh vegetables cost 13.6 per cent more. Food prices overall increased 0.7 per cent.
More worrying was a 0.4 per cent increase in ''core'' prices excluding food and energy. There were sizeable increases across a wide range of goods and services including transport, housing, medical care and entertainment.
The headline rate of inflation has now reached 3.1 per cent, compared with 2.4 per cent a year ago. Kevin Flanagan, an economist at Dean Witter Reynolds in New York, said signs of inflation pressure are being passed on to consumers.
The shift in Wall Street views on interest rates was one factor contributing to the dollar's strength yesterday. By noon in New York, the currency was trading at DM1.4450 and Yen86.73, down from its earlier highs but well above its opening levels of DM1.4130 and Yen 85.35.
Keith Edmonds, chief analyst at IBJ International, said: ''Apart from the signs that the American economy is not slowing that rapidly and inflation could be a worry, the dollar is being supported by signs of progress on the Federal budget deficit.''
Other analysts cited the prospect of US trade sanctions against Japan as a reason for dollar strength. Gerard Lyons of DKB International said: ''Some people see it as a switch of tactics, from talking down the dollar to trade sanctions.''
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