PPI Does Not Look Good

Econintersect’s evaluation of January 2011 showed clear downward trend line in the YoY Producer Price Index (PPI).  February  2011 broke this trend line in a monster move to the upside big time, driven by food and energy price surges.

From the BLS press release:

The Producer Price Index for finished goods increased 1.6 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.8 percent in January and 0.9 percent in December, and marks the largest increase in finished goods prices since a 1.9-percent advance in June 2009. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 2.0 percent, and the crude goods index climbed 3.4 percent. On an unadjusted basis, prices for finished goods advanced 5.6 percent for the 12 months ended February 2011, the largest 12-month increase since a 5.9-percent rise in March 2010.

Last month our analysis showed how the pricing changes moves from the PPI to the Consumer Price Index (CPI).  This large YoY change implies that the CPI – which will be released later this week, should come in between 2.0% YoY and 2.5% YoY.

“One month is not a trend” may not apply in this situation.  Clearly, price increases from food and energy are becoming endemic within the supply chain.  The Japanese crisis may for a time moderate this increase.  The Federal Reserve yesterday acknowledged these pricing increases, but chose to describe this effect as “transitory”.  Econintersect believes food price increases are NOT transitory, although it could be argued energy prices are.

Price increases end up as a major headwind to the lower segment of wage earners as well as the aged on fixed and low incomes.

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Producer Price Index Moderates in January  by Steven Hansen

Energy Surging into PPI Future by Steven Hansen

Beware:  Core CPI Follows Food Inflation  by Steven Hansen