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Economy in Brief

U.S. PPI Is Strong For Third Month; Core Prices Drop Sharply
by Tom Moeller   November 16, 2010

Other than energy prices, inflation is tame. So often observed, it could be considered humdrum. For last month, however, it's an appropriate way to describe producer pricing power. The U.S. Producer Price Index for finished goods rose 0.4% for the third consecutive month, but the latest was half the Consensus expectation. Higher energy prices were behind the increase as food prices fell along with core prices. The PPI less food & energy fell 0.6% which was the largest decline since July 2006. Consensus expectations were for a 0.1% uptick.

Energy prices jumped 3.7% (12.9% y/y) as gasoline prices increased 9.8% (18.1% y/y) and home heating oil rose 5.1% (26.8% y/y). These gains were, however, offset by sharp monthly declines in natural gas (+1.3% y/y) as well as electricity prices (+4.4% y/y). Food prices ticked lower as vegetable (-8.5% y/y) and beef & veal prices fell (+14.3% y/y). These declines were offset by higher egg (-6.8% y/y) and fresh fruit (-12.2% y/y) prices.

Core finished consumer goods prices continued tame and posted a 0.4% decline (+2.2% y/y). Passenger car prices fell 3.0% (-3.7% y/y). Capital goods prices also were down 0.8% (+0.5% y/y) as light truck prices fell 4.3% (+1.4% y/y).

Intermediate goods prices jumped 1.2% as energy prices surged 3.2% and the y/y gain improved to 13.2%. That increase was accompanied by a 1.3% increase in food prices (6.6% y/y). Core-intermediate prices also were quite strong with a 0.6% gain (4.4% y/y). Crude goods pricing resumed its earlier strength due to a 5.4% increase in energy prices (8.2% y/y). Crude food prices continued to surge and jumped 4.2% (21.8% y/y). Continuing to reflect strength in the industrial sector, core crude prices posted a 2.1% (26.0% y/y) jump that was led by strong copper scrap prices (27.0% y/y) and higher iron & steel scrap prices (28.2% y/y).

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

Producer Price Index (%) Oct Sept Aug Year Ago 2009 2008 2007
Finished Goods 0.4 0.4 0.4 4.3 -2.5 6.4 3.9
   Energy 3.7 0.5 2.2 12.9 -17.6 14.1 6.8
   Food -0.1 1.2 -0.3 3.7 -1.4 6.8 6.6
Less Food & Energy -0.6 0.1 0.1 1.4 2.6 3.4 2.0
Intermediate Goods 1.2 0.5 0.3 6.3 -8.4 10.3 4.0
   Less Food & Energy 0.6 0.2 0.1 4.4 -4.2 7.4 2.8
Crude Materials 4.3 -0.5 2.3 17.1 -30.3 21.4 11.9
   Less Food & Energy 2.1 5.5 4.1 26.0 -23.5 14.8 15.6
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