Inflation--Greenspan's Move: It better be Right!

http://www.nytimes.com/reuters/business/business-economy.html
Producer Prices Up, Housing Starts Plunge
By REUTERS Published: April 19, 2005

But outside of food and energy costs, producer prices advanced a mild 0.1 percent for the second straight month.

Over the past 12 months, producer prices have risen a sharp 4.9 percent -- the biggest year-on-year gain since November -- as oil prices have pushed higher.

Economists make a terrible mistake by citing the elimination of volatile elements, it works for the Consumer Price Index, but not for the Producer Price Index. Producer Prices exhibit 'extreme stickiness' when encountering lower Costs, as Business seeks to increase Profits by transference of monies from Resource Costs without lowering their own Price structure. Producer Prices reduce only with general economic downturn of sustained duration. The later year on year Quote expresses the real Inflation in the Economy.

Speculators still keep the price of Oil high, hitting $52/barrel in London today, though Production of Oil is increasing everywhere with actual Consumption leveling if not declining. Food Costs will not reasonably decline either, as Agriculture and Transportation make up the two greatest Costs(both heavily based on Oil consumption) inside Food Production. The Consumer Price Index must eventually be forced up by the Producer Price Index.

The article has another worry:
Single-family starts slid 14.4 percent, the largest drop since January 1991 and starts on structures with five or more units fell 31.6 percent, the biggest drop since March 2000. . . .
Permits for future groundbreaking, an indicator of builder confidence, also fell more than expected but remained at a level economists said showed some fundamental strength

The more than 17% overall drop in Housing will not recover, no matter the prattle about bad weather(could account for maybe 8% of the drop), until the price of Oil drops; this states that low Interest rates will not generate greater Housing or overall economic activity. Bonds and Treasuries, on the other hand, will lose Price and Subscription without Fed increases in the Overnight rate.

Alan Greenspan should immediately indicate there will be a Rate increase soon. lgl