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Economy in Brief

PPI As Expected, But Core Prices Surged
by Tom Moeller February 18, 2005

The PPI for finished goods rose an expected 0.3% in January and reversed the revised 0.3% December decline. Excluding food & energy, however, prices rose 0.8% and were quite a bit stronger than Consensus expectations for a 0.2% rise.

Core finished consumer goods prices jumped 0.9% (2.6% y/y) led by a 1.1% (2.6% y/y) jump in nondurable prices. Strength was highlighted by, but not limited to, a 3.1% rise in prices of tobacco products. Consumer durable prices also rose a firm 0.7% (2.8% y/y) and capital goods prices were up 0.6% (2.8% y/y) as gains in several categories offset lower computer prices.

Finished energy prices fell 1.0% (+9.9% y/y) as not seasonally adjusted gains in most prices were more than anticipated by the seasonal adjustment factors. Finished food prices fell 0.2% (+4.2% y/y).

Intermediate goods prices also rose a firm 0.4% as food prices gained 0.9% (0.4% y/y) and core intermediate prices jumped 0.8% reflecting higher fertilizer prices and renewed strength in lumber prices.

Crude prices slumped another 2.0% pulled down by a 2.5% decline in core crude prices as iron & steel scrap prices fell sharply again (+23.3% y/y). During the last thirty years "core" crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

Producer Price Index Jan Dec Y/Y 2004 2003 2002
Finished Goods 0.3% -0.3% 4.3% 3.6% 3.2% -1.3%
  Core 0.8% 0.2% 2.7% 1.5% 0.2% 0.1%
Intermediate Goods 0.4% -0.1% 8.7% 6.6% 4.6% -1.5%
  Core 0.8% 0.5% 8.5% 5.7% 2.0% -0.5%
Crude Goods -2.0% -3.0% 10.8% 17.6% 25.1% -10.6%
  Core -2.5% -1.3% 13.1% 26.6% 12.4% 3.8%
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