October PPI inflation on finished goods is tame, but intermediate goods prices indicate coming inflation

PPI inflation measurement was more moderate than expected in September with decreases in motor vehicle prices. There was a 3.0% drop in car prices and a 4.3% decrease in light truck prices.  The overall rate held steady at 0.4% in October, coming in way below the consensus forecast for a 0.8% increase.

There are two real important things to know about this inflation number.  Annualized it represents a 4.3% increase which is above the Fed's 2% inflation target. 

Second, price inflation is strengthening in earlier stages of production. Intermediate goods prices rose 1.2 percent in October following a 0.5 percent increase in September. Crude goods surged 4.3 percent, following a 0.5 percent decline the month before. On a year-ago basis, intermediate is up 6.4 percent (not seasonally adjusted) while crude is up 17.0 percent.

Overall, current prices for finished goods are in check, but upstream inflation is much less contained.  Look for more inflation in 3 to 6 months time. 

Source Bloomberg

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