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Economy in Brief

PPI Fell, Core Prices Firm
by Tom Moeller October 17, 2006

The overall producer price index dropped 1.3% last month and by far exceeded Consensus expectations for a 0.3% decline. Lower energy prices pulled down the total but excluding food & energy prices rose 0.6%, an increase that fully reversed the declines during the prior two months. Expectations had been for a 0.2% increase in the core PPI.

Finished energy goods prices dropped 8.4% (-1.6% y/y), led lower by a 22.2% m/m plunge in gasoline prices (-13.3% y/y) and an 18.5% (-0.1% y/y) decline in fuel oil prices. Residential electric power prices also fell 0.1% (+7.1% y/y) but natural gas prices increased 1.8% (-1.2% y/y).

Finished consumer goods prices less food & energy reversed the prior month's decline and rose 0.5% (1.1% y/y). The gain very much reflected a 2.8% (-3.6% y/y) increase in passenger car prices that reversed an August drop. Household furniture prices fell 0.1% (+3.4% y/y).

Capital equipment prices also were firm and rose 0.6% (1.5% y/y) for the first gain in three months. Light truck prices reversed the August drop and rose 3.5% (-4.8% y/y) while prices of pumps, compressors & equipment were strong again, rising 1.2% (4.3% y/y).

Intermediate goods prices dropped 1.4%, the first m/m decline since February, and prices less food & energy were similarly tame. The 0.1% increase was the smallest since August of last year.

The crude materials PPI dropped 3.4% due to a 13.3% (NSA, +0.8% y/y) drop in crude petroleum and a 5.5% skid in natural gas (NSA, -35.0% y/y). Less food & energy crude goods prices were, however, quite strong and rose 1.0% due to higher iron & steel scrap prices (4.4% y/y), higher prices for aluminum base scrap (29.2% y/y) and copper scrap prices which are up 70.9% y/y.

Why Are Yield Curves So Flat and Long Rates So Low Globally?, remarks by Federal Reserve Board Governor Randall S. Kroszner are available here.

Producer Price Index September August Y/Y 2005 2004 2003
Finished Goods -1.3%  0.1%   0.9%   4.9%  3.6%  3.2%
  Core 0.6% -0.4%  1.3% 2.4% 1.5% 0.2%
Intermediate Goods -1.4% 0.4% 4.7%  8.0% 6.6% 4.7%
  Core 0.1% 0.4% 7.4%  5.5% 5.7% 2.0%
Crude Goods  -3.4%  2.2%  -7.8% 14.6%  17.5% 25.1%
  Core 1.0% -2.8%  19.7% 4.8%  26.5% 12.4%
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