A woman shops in a Sam's Club store, a division of Wal-Mart stores, Bentonville, Arkansas, June 4, 2009.
Credit: Reuters/Jessica RinaldiBy Ann SaphirCHICAGO | Thu 28 april 2011 3: 57 pm EDT
CHICAGO (Reuters)-Ben Bernanke's sanguine view about inflationary pressures is in for a test.
The Federal Reserve and its Chairman on Wednesday their position that the rise in commodity prices--such as oil and food prices--"temporary." would be repeated
A growing number of companies from the u.s. consumer product but that they plan to push their sales prices for a big jump in the cost of fuel and other raw materials.
Procter Gamble Co & and Kimberly-Clark Corp. say they will cost more for diapers, toilet paper and detergent; Colgate-Palmolive Co. is raising prices of toothpaste.
That's bad news for consumers already squeezed by rising gas and food prices.
Still supported even Fed policy-makers that the alarm on inflation raised the central bank's decision on Wednesday to leave his $ 600 billion buying bond program to run until the scheduled end in June.
"Unfortunately for the inflation hawks it is simply not strong enough, it's not a big enough pass-through query to create his own unique policy directive," said Richard Hastings, a consumer strategist at Global Hunter strategies, from energy prices.
By the end of the year, he predicted, it will.
"You begin to see the formation of a sufficient amount of inflation for Fed policy change at the end of this year," he said.
Bernanke has argued that the Fed super-easy monetary policy progress has rushed to the central bank two objectives of stable prices and maximum employment.
Unemployment, at 8.8 percent, down from its high last year and the risk of deflation has fallen.
But if inflation rises, the balancing act is trickier, Bernanke made a point Wednesday when asked about the benefits of buying even more bonds to reduce borrowing costs.
"It is not clear that we can make significant improvements in payrolls without any additional inflation risks", he told his first regularly scheduled press conference after a meeting of the Fed's policy setting.
Inflation as measured by the core personal consumption expenditure price index jumped to 1.5% in the first quarter, government figures showed on Thursday, a jump of 0.4 percent the previous quarter.
In the bond market, investors are prices in the risk that inflation is higher than the Fed's preferred inflation gauge, with the difference between the 10-year Treasury Inflation-Protected Securities and regular 10-year government debt implies annual inflation rate of 2.57% in 2021 is runningunder a recent peak of 2.65 per cent.
In a sign of investors ' concerns about inflation, the $ 20 billion iShares Barclays TIPS bond exchange traded fund is trading at its highest level since November 2010.
As inflation accelerating, the US Central Bank might raise rates quickly, turning the tables on countries such as Brazil, who have struggled to the flood of capital due to accuse they partially on the Fed's near zero-tariff policy. But Fed officials don't expect it to.
Fresh projections of the Fed on Wednesday, see the core index, which food and energy costs, rising to between 1.3 and 1.6 percent this year, still far below the Fed informal 2% target.
Moderate U.S. inflation contrasts with the rising prices in many parts of the world.
The European Central Bank hiked rates earlier this month after euro zone inflation rose to 2.7 per cent.
The new projections also showed Fed officials now expect significantly higher headline inflation this year, between 2.1 and 2.8 percent.
Bernanke said increases in commodity prices good for "virtually all" of the increase and will not be expected to remain.
"There's not that much the Federal Reserve can do about gas prices, at least not without completely derail growth, that is certainly not the right way to go," Bernanke said. "Our position is gas prices will not continue to rise in their recent pace."
Including food and energy, the PCE price index rose at a rate of 3.8%, the fastest since the third quarter of 2008.
"We have a different view of the Fed so that temporary," said Michael Pond, co-head of U.S. rates strategy in Barclays Capital in New York. "We think it's a broader commodities story where emerging economic growth of the market threatens to turn upward structural pressure on commodity prices."
In combination with the falling dollar, which increases the cost of imports, which could raise inflation trends for several years, and he said: "the upside risks to inflation is something markets should pay more attention to."
Still, most economists are siding with the Fed, at least for now.
Wages, a major input for the production of costs, rising only slowly. And consumers are concerned about employment will balk at higher prices, they say.
"Companies have talked about wanting to pass on costs, and they have talked about wanting to pass cost for a while," said Michael Feroli, chief U.S. economist at JPMorgan Chase. "Generally they have kind of been hampered by the weakness of the question."
(Reporting by Ann Saphir with reporting by Lucia Mutikani in Washington, Richard Leong in New York and Jessica Wohl in Chicago, edit by Nomiyama Chizu?)
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