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Economy in Brief

PPI Boosted by Energy & Food, Core As Expected
by Tom Moeller December 10, 2004

In November, the PPI for finished goods rose 0.5% and again outpaced the Consensus forecast for a 0.2% gain. Less food & energy, a 0.2% rise in "core" prices was as expected.

Finished energy prices added 1.8% (19.9% y/y) to the 6.8% spike in October. Residential natural gas prices jumped 8.2% (16.5% y/y), offsetting a 6.0% (47.4% y/y) decline in gasoline prices and a 6.3% (63.0% y/y) fall in fuel oil prices.

Finished food prices increased 0.4% (3.1% y/y) on top of the 1.6% October gain. Fish prices posted a notable gain (18.3% y/y) that offset scattered declines in several other categories..

The 0.2% increase in core finished consumer goods prices reflected a 0.3% (1.8% y/y) rise in durable goods prices that followed two months of 0.4% gain. Core consumer nondurable prices rose 0.2% (1.9% y/y) for the second consecutive month. Finished capital goods prices also rose 0.2% (2.1% y/y) after two months of 0.4% gain.

Intermediate goods prices were strong again and rose 0.8%, powered last month by a 10.9% (23.8%) rise in natural gas prices paid by public utilities. Core intermediate prices also showed some firmness and rose 0.4%.

Crude prices jumped another 8.7%, doubling October's 4.3% gain. Core crude prices also rose strong 2.5% but the rate of gain halved versus October. Iron & steel scrap prices rose again (+84.0% y/y as did prices for copper scrap (36.8% y/y) and aluminum scrap (+12.9 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.

"The Historical and Recent Behavior of Goods and Services Inflation" from the Federal Reserve Bank of New York can be found here.

Producer Price Index Nov Oct Y/Y 2003 2002 2001
Finished Goods 0.5% 1.7% 5.1% 3.2% -1.3% 2.0%
  Core 0.2% -0.3% 1.9% 0.2% 0.1% 1.4%
Intermediate Goods 0.8% 0.9% 9.7% 4.7% -1.5% 0.4%
  Core 0.4% 0.3% 8.0% 2.0% -0.5% -0.1%
Crude Goods 8.7% 4.3% 25.9% 25.1% -10.6% 0.3%
  Core 2.5% 5.4% 26.1% 12.4% 3.8% -10.0%
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