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Economy in Brief

U.S. PPI Jumps As Fuel Costs Surge; Core Prices Remain Strong
by Tom Moeller December 15, 2009

There was a broadening of inflationary pressure last month as measured by the producer price index. The PPI for finished goods jumped 1.8% after the tame 0.3% October increase. The rise was by far the largest increase in months and it lifted the y/y gain to 2.7%, its fastest since October of last year. In addition, the November increase was more-than-double the Consensus expectation.

Higher energy costs led the strength in the PPI last month. The 6.9% increase lifted the y/y increase to 10.6%, its strongest since September 2008. Gasoline prices increased 8.2% (35.9% y/y). Elsewhere, the gain in energy prices was more moderate. Fuel oil prices increased 10.8% but they remained down 7.1% from last year. Natural gas prices also increased a lesser 3.9% and they were down 15.6% from the year ago level. Food prices increased a moderate 0.5% but the increase left prices 1.6% lower than last year. Beef & veal prices were off 8.4% y/y, dairy product prices fell 7.3% and vegetable prices slumped 3.2% y/y.

Excluding food & energy prices rose 0.5% and reversed the October decline. The m/m increase in the core PPI contrasted with expectations for a modest 0.2% increase. The PPI for finished consumer goods less food & energy rose 0.5% (1.2% y/y) and also reversed the October decline.  Finished durables prices increased 0.6% (0.8% y/y) while core finished consumer nondurable goods prices rose a modest 0.4% (2.3% y/y). Capital equipment prices increased for the first time in three months. The 0.4% increase nevertheless left prices up just 0.4% y/y, nearly the weakest increase since 2003.

Prices for intermediate goods jumped 1.4%, reflecting the strength in energy prices. Core prices also firmed and the 0.3% increase reversed the October decline. The y/y gain in prices amounted to 0.3% which was a reversal from the 2.4% price deflation at the end of last year. Chemical, lumber and metals prices have firmed. The crude materials PPI again reflected the strength in energy prices and rose 5.7%. Core prices gave back the October gain but y/y were up 20.4% due to the improved economy.

The producer price data is available in Haver's USECON database. More detailed data is in the PPI and in the PPIR databases.ยท Bank Relationships and the Depth of the Current Economic Crisis from the Federal Reserve Bank of San Francisco can be found here

Producer Price Index(%) November October September Y/Y 2008 2007 2006
Finished Goods 1.8 0.3 -0.6 2.7 6.4 3.9 2.9
  Core 0.5 -0.6 -0.1 1.2 3.4 2.0 1.5
Intermediate Goods 1.4 0.3 0.2 -1.5 10.5 4.0 6.4
  Core 0.3 -0.2 0.9 -3.0 7.4 2.8 6.0
Crude Goods 5.7 5.4 -2.1 4.8 21.4 11.9 1.4
  Core -0.8 0.5 3.6  20.4 14.8 15.6 20.8
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