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Economy in Brief

Producer Prices Surge, Core Strong
by Tom Moeller November 16, 2004

The PPI for finished goods surged 1.7% last month, nearly triple Consensus expectations for a 0.6% gain and the strongest monthly increase since January 1990. Less food & energy, the 0.3% rise in "core" prices also was triple expectations for a 0.1% gain.

Finished energy prices spiked 6.8% (17.0% y/y) higher paced by a 14.2% (45.3% y/y) rise in gasoline prices and an 18.7% (66.4% y/y) gain in fuel oil prices. Residential natural gas prices rose 1.7% (8.2% y/y).

A 0.2% gain in core finished consumer goods prices reflected a modest 0.2% (1.7% y/y) gain in nondurable goods prices but durables prices rose 0.4% (1.6% y/y) for the second consecutive month.Finished capital goods prices also rose 0.4% (1.9% y/y) for the second month.

Finished food prices jumped 1.6% (2.4% y/y) reflecting strong gains in prices for fruits, vegetables and meats.

"Cattle prices on a two-year wild ride" from the Federal Reserve Bank of Minneapolis can be found here.

Crude prices reversed the prior month's decline with a 4.3% jump. Less food & energy, crude prices were more than firm with a 5.5% spike as metals prices took off; iron & steel scrap, +90.7% y/y; copper scrap, +47.2% y/y; nonferrous metal ores, +46.2% y/y. During the last thirty years "core" crude prices have been a fair indicator of industrial sector activity with a 51% correlation between the six month change in core crude prices and the change in factory sector industrial production.

Intermediate goods prices jumped 0.9% higher as energy prices rose 4.3% (16.6% y/y). Core intermediate prices were tame and rose 0.3%.

Producer Price Index Oct Sept Y/Y 2003 2002 2001
Finished Goods 1.7% 0.1% 4.4% 3.2% -1.3% 2.0%
  Core 0.3% 0.3% 1.7% 0.2% 0.1% 1.4%
Intermediate Goods 0.9% 0.1% 8.9% 4.7% -1.5% 0.4%
  Core 0.3% 0.7% 7.8% 2.0% -0.5% -0.1%
Crude Goods 4.3% -4.2% 15.8% 25.1% -10.6% 0.3%
  Core 5.4% -2.5% 28.3% 12.4% 3.8% -10.0%
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