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Economy in Brief

PPI Still Troublesome
by Robert Brusca October 15, 2008

The PPI emitted mixed signals in September. The headline finished goods PPI dropped a sharp 0.4% as energy prices fell. But the core PPI for consumer goods rose by a sharp 0.5% an uncomfortable harbinger for the CPI core that is due for release tomorrow.

Wholesale food prices were tempered in September rising by just 0.2%. Food in general has seen its inflation profile lowered as its Yr/yr pace of 8.1% far exceed its three-month pace of 3.1%.

Finished energy prices are off sharply, dropping by 2.9% in the month. They are also off at a 16.7% annual rate in the quarter. That is the constructive side of the inflation trend. But the Fed looks harder at core inflation and there trends are still worsening.

But for core consumer goods Yr/Yr inflation has gone from 4.4% over 12 months to 5.1% over six months to 5.3% over three months. That is an uncomfortable trend.

However, the weakness in the economy and the ongoing financial crisis will put this PPI on the back burner. The Fed is not giving up on fighting inflation instead it knows that economic conditions such as these will snuff out inflation without special action by the central bank. Extreme economic weakness does that.

For now the economy picture is mess. The economy is weakening fast. The financial sector is in shambles and inflation is still accelerating and moving out over the Fed's comfort zone. But we know that is just a snap shot of an ever changing environment. In fact inflation is about to be extinguished by the economic weakness that appears to be getting worse. Meanwhile, the Fed and the Treasury have made great strides in trying to contain the financial unraveling. Their attempt at containment appears to be a success – so far. Aid for the ailing economy has not yet moved up to the actionable stage but Congress is making plans for a stimulus plan. This is one of those times that you must look at the indicators with a broader perspective. At another time this PPI report would be viewed as a bad PPI and as trouble for the Fed. But in this environment the report will not gather headlines – hardly even footnotes.

Key Trends In Producer Prices
  Sep-08 PPI Trends By Type Of Good CHANGE
PPI 1Mo:M/M 3-Mo:ar 6-Mo:ar 1-Yr Yr-Ago Y/Y
Total PPI -0.4% -0.4% 6.8% 8.7% 4.4% 4.3%
Finished Consumer Goods -0.6% -2.3% 7.5% 10.2% 5.2% 5.0%
Consumer Foods 0.2% 3.1% 6.1% 8.1% 5.8% 2.3%
Finished Consumer Goods Excl Foods -0.9% -4.2% 8.0% 11.1% 5.0% 6.1%
Nondurables less Food -1.3% -6.8% 9.7% 14.1% 7.0% 7.1%
Consumer Nondurable Goods excl Food & Energy 0.5% 6.8% 6.4% 5.8% 3.4% 2.4%
Durable Goods 0.4% 3.5% 3.5% 2.5% 0.8% 1.7%
Finished Core Consumer Goods 0.5% 5.3% 5.1% 4.4% 2.2% 2.2%
Capital Goods 0.5% 5.6% 4.8% 3.7% 1.6% 2.1%
MFG Industries 0.5% 6.3% 5.8% 4.3% 1.8% 2.5%
Non-MFG Industries 0.5% 5.4% 4.4% 3.5% 1.5% 2.0%
Core PPI 0.4% 5.4% 4.9% 4.1% 2.0% 2.1%
Memo: Finished Energy -2.9% -16.7% 12.4% 22.3% 10.3% 11.9%
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