Your update of the most important business news from dozens of respected news sources, selected by the editors of BusinessWeek.

Early Edition August 19 2008 at 04:15 PM Chi-Chu Tschang and Harry Maurer

New Inflation Data Stoke 'Stagflation' Fears

Surging energy costs sent wholesale inflation raging at the highest level in more than a quarter century last month, further evidence that a sluggish economy is also facing steep inflationary pressures. The Labor Department producer price data suggest ?ostagflation ? could become a central concern for Federal Reserve policy makers, who now confront a situation in which they?Tll likely do nothing with interest rates given the need to contain inflation but also not harm growth, analysts said. The annualized price increase in July was 9.8%, the biggest 12-month jump since the early 1980s, The New York Times reported.

Also on Tuesday, the Commerce Department said housing starts fell by 11% in July, the largest decrease in 17 years. Construction activity declined most in the West and Northeast. `There's no doubt we're in a period of stagflation now,'' Peter Kretzmer, a senior economist at Bank of America, told Bloomberg.

Sources: New York Times, Bloomberg

Report: More Pain For Lehman

Lehman Brothers may write down another $4 billion of asset-backed securities and other items as the U.S. real estate bust continues to hammer its portfolio, according to a new report from JP Morgan. Lehman shares dropped another 13% on Aug. 19 as investors worried that the U.S. government may have to step in to save the bank. Such a move would likely make current, $13 shares worthless. Separately, Lehman is in talks to sell all or part of its asset-management unit, according to reports by various media on Aug. 19.

Sources: Bloomberg, Reuters

Large Bank Failure Likely, Former IMF Official Says

The global credit crunch is likely to spell the failure of a large U.S. bank, the former head of the International Monetary Fund told reporters on Aug. 19. Kenneth Rogoff, who was the IMF?Ts chief economist from 2001 to 2004, and now teaches at Harvard University, also predicted that U.S. interest rates will need to soar as the Fed tries to squelch high inflation.

Source: Times of London

Home Depot Sees Weak Quarter, 2008

Second-quarter income dropped 24% at the Home Depot, as cash-strapped consumers and a weak housing market took a toll. The Atlanta-based retailer earned $1.2 billion in the quarter, and affirmed its forecast for the full year.

Source: Wall Street Journal

NATO in Show of Unity over Georgia

Ministers from 26 NATO member states are determined to show a united front in demanding the withdrawal of Russian troops from Georgia, and will continue to hold open the possibility of Georgia's eventual membership in the military alliance. Russia dismissed the NATO talk, and said the alliance was determined to support a ?ocriminal ? regime in Georgia

Source: Financial Times

Taliban Attack Kills French Soldiers

A daring overnight raid by Taliban insurgents on a U.S. air base coincided with an attack on an elite French unit that left ten French troops dead. The coordinated attack involving suicide bombers was the deadliest in Afghanistan since 2005 and demonstrated the renewed strength of Taliban fighters. French President Nicholas Sarkozy said the attack would not diminish the nation?Ts resolve.

Source: Associated Press

EA Lets Take-Two Offer Expire, But Deal Still Possible

Videogame giant Electronic Arts has let lapse its proposed $2 billion takeover offer for rival Take-Two Interactive, owner of the Grand Theft Auto franchise. But the companies are still in private talks that could yield a deal.

Source: Los Angeles Times

GM Expands Employee Price Program

Hoping to clear out 2008 inventory, General Motors is expanding its employee-pricing offer to nearly all 2008 models and some from 2009. The promotion offers discounts of roughly 10% below invoice price, and lasts through Sept. 2. August has traditionally been one of Detroit?Ts weakest sales months.

Source: AP, via Google

The iPhone Kill-Switch Kerfuffle

Privacy advocates' concern over what Apple will do with iPhone user data may be overblown, industry experts say.

Source: BusinessWeek

BAE Wins Chance to Bid on U.S. Air Force Deal

Britain's BAE--Europe ?Ts largest defense contractor--has won the opportunity to be among a dozen bidders for up to $7 billion worth of contracts from the U.S. Air Force.

Source: Times of London

Conversation of the Day: Health Care: The Real Fiscal Nightmare

Reader Rajender writes: "The health care system in the U.S. is like a Mafia run by insurance companies, the AMA, pharmaceuticals, labs, and, of course, the doctors. All competing to keep the biggest slice of the pie with minimal regard for patients?T interests ?" a typical inefficient system. "

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