By Kasra Kangarloo

WASHINGTON (MNI) – Producer and consumer price data to be released
this week are expected to show the outsized effects of rising oil prices
due to continued unrest in the Middle East, which recently culminated in
the deployment of Saudi Arabian troops to quell protests in Bahrain.

According to a survey of economists by Market News International,
headline PPI is expected to rise 0.7% over the month of February while
core prices are expected to rise 0.2%; headline CPI is expected to rise
0.4% while core prices are expected to rise 0.1%.

The difference between core and headline prices are food and energy
products, which are removed from the core figure due to their high
monthly volatility.

Retail gasoline prices rose 11.6 cents over the month of February
to a national average of $3.264 per gallon, according to the Energy
Information Administration.

David Resler, economist at Nomura, said that oil prices will almost
certainly be the main driver of rising prices, though he played down the
risk of any pass-through effects to other prices.

“There will be very little pass-through to core prices, period, not
this month, and not in general,” Resler said in a telephone interview.
He did note that there was a greater likelihood that the pass-through
effect would materialize in producer prices due to the emphasis on
services in consumer prices.

Jonathan Basile, economist at Credit Suisse, also noted that the
recent strength in the manufacturing sector would likely contribute to
producer prices.

“The PPI will be a broader reflection of price increases from
manufacturing strength, and an indication of an inventory build in the
sector,” Basile said in a telephone interview.

The survey of manufacturers by the Institute of Supply management
showed the highest index in six years, led by increases in new orders
and prices.

Resler contested the possible relationship between manufacturing
strength and prices, noting that there is little historical correlation
between manufacturing surveys and producer prices.

The effect of rising energy prices has already been seen within
recent measures of consumer optimism. According to a survey by the
University of Michigan, the index for confidence plunged 9.3 points to
68.2, led by a severe drop in the future outlook. One-year inflation
expectations also jumped to 4.6% from a previous level of 3.4%. A
similar survey by Investor’s Business Daily also showed a sharp fall in
confidence.

The February PPI report will be released Wednesday at 8:30 a.m. EDT
and the CPI report will be released Thursday at 8:30 a.m. by the Labor
Department.

— Kasra Kangarloo is a reporter for Need to Know News

** Market News International Washington Bureau: 202-371-2121 **

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