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Economy in Brief

PPI Up Another 0.7%, Core Prices Fell
by Tom Moeller November 15, 2005

The overall Producer Price Index rose another 0.7% last month on top of the 1.9% September spike. The latest by far exceeded Consensus expectations for no change in prices.

The strength last month was led by a 12.3% (50.4% y/y) rise in home heating oil prices and a 12.7% (38.9% y/y) jump in natural gas which more than offset the 3.3% (+40.3% y/y) decline in gasoline.

Price inflation at the so called "core" level nevertheless eased a bit last month as a 0.3% decline in prices less food & energy reversed all of the prior month's gain. Consensus expectations for a 0.2% increase.

Core finished consumer goods prices fell 0.2% (+2.0% y/y). Durable goods prices dropped 0.9% (+0.2% y/y) led by a 3.0% (-2.1% y/y) decline in passenger car prices as well as weakness in prices for home electronics (-2.0% y/y), carpets (+6.1% y/y) and home appliances (+1.7% y/y). Core consumer nondurable goods prices rose 0.2% (3.5% y/y) for the second consecutive month.

"Spillover" effects from the past strength in oil prices continued to be evident at the earlier stages of processing. Intermediate goods prices jumped 3.0% on top of the 2.5% September surge while core intermediate goods prices repeated their 1.2% spike of the prior month.

Crude energy prices gained 12.4% (69.4% y/y) as natural gas prices soared an unadjusted 20.3% (120.4% y/y). The gain lifted overall crude prices 6.7% though core crude prices reversed some of their September strength with a 1.2% decline. 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 Oct Sept Y/Y 2004 2003 2002
Finished Goods 0.7% 1.9% 5.9% 3.6% 3.2% -1.3%
  Core -0.3% 0.3% 2.0% 1.5% 0.2% 0.1%
Intermediate Goods 3.0% 2.5% 10.5% 6.6% 4.6% -1.5%
  Core 1.2% 1.2% 4.3% 5.7% 2.0% -0.5%
Crude Goods 6.7% 10.2% 31.5% 17.5% 25.1% -10.6%
  Core -1.2% 5.3% 0.9% 26.6% 12.4% 3.8%
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