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Tuesday, December 14, 2010

PPI Jumps... Is Core Inflation in our Future?

Sorry for the lack of posts... my life has been a whirlwind; kind of like the latest producer price index release (how's THAT for a transition).

The Atlantic details:

Is the Fed's new asset purchase program already succeeding in raising inflation? Looking at the latest producer price index (PPI) data implies that it could be. The prices for finished goods that producers face increased by 0.8% in November, according to the Bureau of Labor Statistics. That's the biggest increase since March. Is inflation rising, or is this just a blip?
That is the million dollar question.

My view? Unless we see a pickup in employment (we may), all the stimulus (fiscal and monetary) will just feed into the rise we are seeing in commodities, not overall price levels. If corporations / individuals don't see a corresponding pickup in profits / income, then all this means is less money for non-core items. The result? A split between headline and core inflation. Just what we have seen thus far...

Back to the Atlantic:
Since August, there certainly doesn't seem to be much deflationary threat here. The 12-month change in PPI for finished goods is 3.5% as of November.

So what's driving the increase in prices? Food and energy make up a significant influence. Food prices rose by 1.0%, and energy prices were up 2.1%. You have probably noticed the latter driving an increase in prices at the pump. If you exclude those two factors, core PPI for finished goods rose by 0.3%.
Source: BLS