By Evelina M. Tainer, Chief Economist, Econoday
2/23/01

Economic indicators were sparse during this holiday-shortened week. That didn't prevent market players from being surprised by a spurt in the consumer price index. The prior week's jump in the PPI - often considered a leading indicator for consumer prices - should have warned investors about a potential price burst in the CPI. The negative surprise did hurt stock and bond prices, though, for the most part, price hikes were in components associated with normal large monthly fluctuations. Investors and policymakers will closely monitor next month's inflation figures, but downside risk to the economy remains the major concern. Two Federal Reserve regional presidents (San Francisco and Atlanta) indicated as such on Wednesday afternoon after the release of the CPI figure. They believe that economic activity is the primary concern for the Fed today. Only the president from the Cleveland Fed is primarily concerned with inflation - and he is a known inflation hawk. However, some economists (a small minority at this point) are starting to mention stagflation as a possibility. Remember the stagflation of the 1970s when inflation rates were high and economic growth was low? Right now, it doesn't appear likely that is a key concern for Fed officials, but the pundits are circulating the new "mot du jour".