Morgan Stanley Report Says Oil Prices Increasing Inflation

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High oil prices will stoke inflation and add as much as a full percentage point to U.S. domestic prices, Merrill Lynch & Co. said in a report this week. (5/29/08)

High oil prices will stoke inflation and add as much as a full percentage point to U.S. domestic prices, Merrill Lynch & Co. said in a report this week. U.S. gross-domestic product growth this year may halve to 0.6 percent from 1.2 percent because of higher oil prices, David Rosenberg, chief North America economist at Merrill Lynch, said in a report. The economy next year may contract 0.3 percent rather than expand 0.6 percent, he wrote. ``It seems obvious that there is little chance of any relief over the short and intermediate term, barring a collapse in demand, particularly in the emerging-market world,'' Rosenberg wrote. ``If the oil price fails to recede from the current record level, the implications for our calls on inflation and real GDP growth would be significant.''

. . .Prices rose yesterday because ``supply constraints are biting against the backdrop of still-strong global demand,'' Richard Berner, co-head of global economics at Morgan Stanley, said in a report. ``While prices are high enough to curb demand in the developed economies, we think that supply limits could easily take Brent crude quotes to $150 a barrel,'' Berner, who is based in New York, said in the report.

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