Inflation Estimates Creep Up; Getting a Fix on Prices and Oil Grows Increasingly Crucial
THE FINANCIAL markets could use a few good inflation watchers these days as soaring oil prices and a strong economy stoke concerns about rising consumer prices.</br></br>Among economists regularly surveyed by The Wall Street Journal, two have stood out for their ability to forecast inflation: Gail Fosler, chief economist at the Conference Board, and Maria Fiorini Ramirez, of MFR Inc. Unfortunately, for those in need of guidance, the two economists now see things very differently. Ms. Fosler expects inflation to pick up by year's end while Ms. Ramirez sees inflation easing off a bit.</br></br>Collectively, the 56 economists in the Journal surveys have been expecting headline inflation to move down from the 3% rate posted early in the year, as prices for energy and other commodities ease. The consensus of the economists who participated in the latest monthly survey is that the consumer-price index will rise 2.5% on an annual basis by year's end. But that consensus is creeping up. The group was looking for a CPI increase of 2.3% two months ago.</br></br>Getting a fix on inflation and oil is becoming increasingly important. Higher consumer inflation could push up interest rates and erode the purchasing power of households, which could eventually derail economic growth. Right now the economy is sending off mixed signals on the outlook. While commodity prices have soared, manufacturers have had difficulty passing higher costs on to consumers.</br></br>Forecasts reflect the confusion. Among economists who have participated in the survey for at least three years, only nine accurately predicted the inflation rate would slow in 2003, when it dipped below 2%, and then accelerate again in 2004, when it shot up over 3%.