Posted on: Wednesday, June 16, 2004

New report suggests inflation is manageable

By Michel J. Martinez
Associated Press

NEW YORK — Investors got some reassurance about inflation and the economy from Federal Reserve Chairman Alan Greenspan yesterday, and sent stocks higher as the market's interest-rate worries ebbed.

Testifying before Congress at his reconfirmation hearing, Greenspan said inflation was not a major concern, though he reiterated that the Fed would be aggressive if need be.

His comments came shortly after the Labor Department released its latest Consumer Price Index. While the reading was higher than expected, the "core" CPI — without energy and food prices — was in line with expectations, showing economic growth, and accompanying inflation, may be manageable.

"It doesn't change the fact that interest rates will rise, but the pace that the Fed has to raise interest rates is the key question," said Joseph Battipaglia, of Ryan Beck & Co. "This could call for the more measured pace."

The CPI reading for May was 0.6 percent higher, the biggest increase since January 2001. Economists expected a 0.5 percent increase. But with food and energy costs taken away, the core CPI rose 0.2 percent.

With the Organization of Petroleum Exporting Countries promising to increase output to combat high oil prices, and with gasoline prices falling last week, some analysts felt energy prices may soon come under control.

It remained unclear how much the Fed would raise the benchmark interest rate when it meets June 29.

Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to 1.64 billion shares, compared with 1.47 billion shares Monday.