Thursday, October 14, 2010

PPI: Headline - Core Diverge

Marketwatch details:

U.S. wholesale prices jumped 0.4% in September, mainly because of higher meat and natural gas costs, the government reported Thursday.

Core producer prices, which exclude the volatile food and energy categories, rose 0.1%. The core number tends to draw the most attention of economists.

After the report on wholesale prices as well as rising weekly jobless claims and a growing trade deficit, both bonds and stocks fell. See story on jobless claims.

The Fed is unlikely to let the report stand in the way of another round of bond purchases, economists said.

“Over the last ten months, core prices have increased 0.1% seven times, hardly sufficient to warrant concerns about inflation,” said Dan Greenhaus, chief economic strategist at Miller Tabak.

My expectation is that the gap between headline and core PPI will continue to grow as the weak dollar will continue to cause commodities (input) prices to rise, whiel the muddle through economy will weigh on the ability to pass-through these price increases.

Source: BLS