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Earnings Squeeze Part II
-- February 21, 2003

As we commented yesterday, skyrocketing producer prices don't necessarily translate into broad-based inflation. And today's Consumer Price Index release confirms this.

The Consumer Price Index -- which tracks the prices that consumers pay for goods -- rose just 0.3% in January, mostly as a result of spiking oil and gas prices. That's because companies know that consumer confidence is at its lowest in nearly a decade, spending is in a severe slump, and income growth has slowed. Consumers just aren't in a position to pick up the tab for rising costs.

Meanwhile, companies have already embarked on dramatic cost-cutting programs to boost falling profits. And productivity gains, which have allowed companies to keep costs low, are disappearing. Now, rising producer prices are going to shave off even more of corporate profit margins.

Wall Street has been promising investors a corporate earnings recovery for more than a year. It hasn't come to fruition yet. And now, it's moving so far out on the horizon that it's about to fall off!

related article: Consumer Prices Jump 0.3 Percent