Price increases the worst since 1981.

Price increases the worst since 1981.

Price increases the worst since 1981.

A summary of what's in the major publications.
Aug. 20 2008 6:16 AM

Feels Like 1981

A sky-high producer price index, which hit its highest point in 27 years last month, is the centerpiece of today's NYT business coverage. With businesses paying more for raw materials, commodities, and oil, the inflationary impact can be felt across the economy. "There is virtually nothing that we have touched in the last six months that hasn't increased," Gary O'Neal, a division manager at Central Plains Steel in Wichita, Kan., complained to the NYT. Ever-increasing food and energy costs are, yet again, the big culprit, the Labor Department's data from Tuesday reveal. It's a worrying sign as it "shows inflation is still running high even as the U.S. economy slows," the Wall Street Journal reports, before adding another worrisome statistic: The PPI is up 9.8 percent since July 2007, also the biggest 12-month price spike since 1981.

There is some hope the worst of the inflation is behind us. "It's likely that this increase does reflect the peak given that energy costs are coming off now," Bank of America senior economist Peter Kretzmer told the WSJ. If that silver lining fails to materialize, however, expect the Federal Reserve Bank to step in, the newspaper suggests.

The Journal leads off its business coverage with still more ominous news about the sorry state of lending giants Fannie Mae and Freddie Mac. Freddie's prospects in particular look bleak, WSJ reports, after it was forced on Tuesday to pay "unusually rich terms" to investors in the auctioning off of $3 billion in debt to raise much-needed funds. The Financial Times pointed out it was the "highest risk premium yet" Freddie was forced to shell out, though not quite as bad as a recent Fannie auction. The newly minted Freddie notes carry a yield that is 113 basis points above comparable Treasuries, FT says; Fannie's bond auction from a week earlier weighed in at 122 b.p. more dear than comparable Treasuries. For those keeping score: Just as Bear Stearns was collapsing in March, it succeeded in selling off notes at a more respectable 105.5 b.p. more than Treasuries, the FT points out.

The New York Times reports that the steep borrowing premium
Fannie and now Freddie face is stoking fears that a government bailout is looking more likely. The bailout chatter sent shares in both Fannie and Freddie tumbling yet again on Tuesday, triggering a broad sell-off across all U.S. indices. "The markets are acting like a bailout is inevitable," Sean Egan, managing director of Egan-Jones Ratings, an independent credit ratings firm, told the NYT. And how much would an aid package cost taxpayers? A cool $20 billion for each company should do it, Egan estimates. For bailout watchers, WSJ's "Heard on the Street" delivers an interesting trigger to look out for: If the stubborn  30-year mortgage rate fails to come down, expect the Treasury Department to step in with help for both borrowers and lenders like Fannie and Freddie.

In case you needed any reminding, WSJ informs us today that the late-1990s tech boom was a long time ago. Why so nostalgic? It's the most vivid way to bring perspective to
the slowdown of the once-mighty Indian technology sector that, 10 years on, struggles with dwindling growth rates, fierce competition from Eastern Europe and Vietnam, and penny-pinching U.S. clients. "The first round of growth is always easier," Som Mittal, president of the Indian tech industry's trade group, Nasscom, told WSJ. "The next 10 years is going to be different." Don't feel too bad for Indian tech firms, though. Yes, the sector's growth rate is expected to halve—but to between 20 percent and 25 percent.

A rare bit of upbeat news emerged from tech bellwether
Hewlett-Packard on Tuesday as it reported better-than-expected third-quarter earnings on Tuesday that included a 14 percent jump in profits, according to an Associated Press report carried on CNNMoney. The Wall Street-defying numbers sent HP shares up 3 percent in after-hours trading as it solidified its position as the world's top-selling computer maker. But don't read into this a sign for a larger U.S. tech resurgence. " Revenue from outside the US accounted for some 68% of the total, with particular strength in Asia," the BBC points out.

For Cubs fans this summer, all is right in the world: They're tied for the best record in baseball. And though it will be weeks before the Cubs clinch a pass to the postseason, that's not stopping fans from ponying up serious money on futures options for seats to playoff and even World Series games at the home ballpark, Wrigley Field. According to Marketwatch.com,
options on seats for anticipated Cubs postseason games are fetching as much as $1,750 online. All the Cubs have to do now is make it to the Series. It last happened in 1945.

Bernhard Warner is deputy New York bureau chief at the Industry Standard.