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Economy in Brief

U.S. PPI Jumps With Higher Food Prices; Core Prices Remain Tame
by Tom Moeller   October 14, 2010

The U.S. Producer Price Index for finished goods again turned in a strong performance last month. The 0.4% increase repeated its August gain and left the y/y comparison at 4.0%, about where it's been this all year. The monthly rise was double Consensus expectation. Higher food prices, and before that higher energy prices, have led recently monthly increases. These have not, however, yet flowed through to core pricing power. The PPI less food & energy inched up an expected 0.1%. The y/y gain, however, improved to 1.5% due to the comparison to declining prices one year ago.

Food prices were notably strong last month as a 1.2% increase was the largest since March. It was driven by sharply higher prices for meat and dairy products. Further strength in energy prices also drove last month's PPI as higher prices for electric power (5.3% y/y) offset monthly declines elsewhere. 

Core finished consumer goods prices continued tame and posted another 0.1% increase (1.5% y/y). The 12-month gain remained down sharply due to declines in apparel prices as well as lower prices for appliances (-0.3% y/y) as well as passenger cars (-1.3% y/y). Furniture (1.1% y/y) and carpeting (0.6% y/y) prices have been relatively strong. Capital equipment prices posted a second 0.1% monthly increase (0.7% y/y).

Intermediate goods pricing power again improved slightly with a 0.5% increase. The 5.5% 12-month gain was, however, off its April high of 8.7%. Intermediate energy prices rose 0.7% and the y/y gain improved to 11.4%. That improvement was accompanied by an accelerated 5.2% y/y increase in food prices and a modest 0.2% gain (3.9% y/y) in core-intermediate prices. Crude goods pricing deteriorated after its recent strength due to an 8.8% decline in energy prices (14.4% y/y). Crude food prices jumped 5.0% (23.7% y/y). Continuing to reflect strength in the industrial sector, core crude prices posted a 5.5% (25.3% y/y) jump that was led by strong copper scrap prices (23.8% y/y) and higher iron & steel scrap prices (33.9% y/y).

The PPI data are contained in Haver's USECON database, with further detail in PPI and PPIR.

Macroprudential Supervision and Monetary Policy in the Post-crisis World is the title of Monday's speech by Federal Reserve Vice Chairman Janet L. Yellen to the National Association for Business Economics and it can be found here.

Producer Price Index (%) September August July Year Ago 2009 2008 2007
Finished Goods 0.4 0.4 0.2 4.0 -2.5 6.4 3.9
   Energy 0.5 2.2 -0.9 10.3 -17.6 14.1 6.8
   Food 1.2 -0.3 0.7 5.0 -1.4 6.8 6.6
Less Food & Energy 0.1 0.1 0.3 1.5 2.6 3.4 2.0
Intermediate Goods 0.5 0.3 -0.4 5.5 -8.4 10.3 4.0
   Less Food & Energy 0.2 0.1 -0.4 3.9 -4.2 7.4 2.8
Crude Materials -0.5 2.3 2.7 20.2 -30.3 21.4 11.9
   Less Food & Energy 5.5 4.1 -1.4 25.3 -23.5 14.8 15.6
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