The Bureau of Labor Statistics of the U.S. Department of Labor reported today that the seasonally adjusted Producer Price Index for Finished Goods advanced 1.7 percent in October. This gain followed a 0.1- percent rise in September and a 0.1-percent decrease in August. At the earlier stages of processing, prices received by the manufacturers of intermediate goods went up 0.9 percent, after increasing 0.1 percent in the prior month. The index for crude materials turned up 4.3 percent in October, compared with a decline of 4.2 percent in September.
In addition, the core rate is 4.4% for the last 12 months.
ftp://ftp.bls.gov/pub/news.release/ppi.txt
http://cbs.marketwatch.com/news/story.asp?guid=%7B2C7FC1E7%2D386E%2D44C0%2D953F%2D658B0C6907AF%7D&am
p;siteid=mktw
(snip)
Among finished goods, prices for energy goods turned up 6.8 percent in October, following a 0.9-percent decline in September. The finished consumer foods index rose 1.6 percent, compared with a 0.1-percent increase in the prior month. By contrast, prices for finished goods other than foods and energy advanced 0.3 percent in October, the same rate of increase as in September.
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Prices for gasoline climbed 17.3 percent, following a 0.7-percent rise in September.
(snip)
A 34.2-percent upsurge in October's fresh and dry vegetables index followed a 12.1-percent increase in September and led the acceleration in the finished consumer foods index.
The increase in food prices raises the risks of a worse-than-expected consumer price index, which will be released on Wednesday, said Ian Shepherdson, chief U.S. economist for High Frequency Economics.
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Some general observations.
First, this is a one month figure, not a high number in a trend of high numbers. Energy and food were the main reasons for the larger than expected increase in the number. When those two figures are removed, the index increased .3%. I haven't seen any reason for the stated increase in specific food stuffs, although I would guess that the hurricane season -- which hit Florida and disrupted transport from South America to North America -- may have something to do with the huge spike.
Secondly, before the report there was already speculation the Fed would raise rates 1/4 point in December. The latest employment report -- which showed an increase of 377,000 payroll jobs -- would naturally lead the Fed to raise rates. This months PPI number may have just cemented that decision. But, interest rates are already absurbly low (the discount rate is 2%), so increasing them is not that big a deal. At least not yet.
Third, don't let this freak you out in a major way. It is easy to lose perspective because of one number.
But, keep your eye open. If I am right and the hurricanes caused the bump in food prices, those numbers should come down in the coming months. But oil is another story altogether, with a complex set of variables. Although Nigerian workers have agreed not to strike, events in Iraq, Russia and the weather situation in the American North East could easily lead to another price spike. In addition, the oil market has already corrected, so an upward move is a bit more likely.