Inflation Coming?

The Inflation is a valid fear now. The Consumer Price Index (CPI) rose
0.5% in July, the biggest jump since October of last year. And while the
core CPI that excludes often volatile food and energy prices stayed in
check, the Producer Price Index (PPI), the measure of prices paid by
businesses rather than consumers, also showed the biggest jump (1%)
since October, with the core PPI also posting a 7-month high.

The core rate of inflation at the wholesale level rose 0.4%; core inflation
was expected to rise 0.1%. Inflation accelerated on a year-over-year
basis to 4.6% from 3.6% a month earlier.

With these results coming forward, the Federal Reserve might get more
aggressive with a half-percentage point rate hike any time before the end
of this year. The core CPI is now up 2.1% (on an annual basis). That's at
the upper end of the Fed's zone of tolerance.

If the gas price continues around $65 a barrel, sooner or later it is going to
affect all aspects of economy. The shop-to-shop delivery guys are already
feeling the price pressure and it is just a matter of time that this would be
transferred to average consumers. Companies have to increase their
travel budget and airlines are already in jeopardy over the steep hike in
gasoline prices.

Here are some reactions from the market:
-- The indication of accelerating wholesale inflation hurt the Treasury
market. The benchmark 10-year Treasury note closed down 18/32 at
99-24/32 with a yield of 4.281%.
-- The dollar benefited from investors' conviction that the Federal
Reserve is likely to keep lifting rates, following the latest inflation reports.
The dollar was up 0.4% at 109.95 yen, while the euro fell 0.09% to $1.2267.
-- December gold futures dropped to a four-session low, closing down
$6.30, or 1.4%, at $445.20 an ounce.