Producer Prices Shoot Up, Raise Inflation Red Flag

The Producer Price Index for finished
goods saw its highest jump since September of 1990, immediately raising
inflation concerns and serving notice the the Federal Reserve that a more
cautious approach to interest rate cuts may be necessary. After no change in
December, the PPI rose 1.1% in January while the core rate, which excludes foods
and energy, increased 0.7%. Both numbers were well above analyst expectations.
 

In the manufacturing industry, prices for
nondurable manufacturing materials made the biggest play, rising 1.1%. 
  

Finished goods

A 15.3% rise in liquefied petroleum prices
helped fuel a 3.8% increase for the finished energy goods index. Additional
finished goods details for January are as follows:

• Before seasonal adjustment, the index for finished
  goods rose 1.1% to 141.2 (1982=100).
  
• Over the past 12 months, prices for finished goods
  and finished energy goods increased 4.8% and 21.6%, respectively.
  
• The finished consumer goods index advanced 0.8%,
  after falling 0.4% in December.
  
• Despite a 5.4% fall for the electronic computer
  index, the capital equipment index rose 0.3%, after a 0.1% gain in
  December.
  - Price gains: passenger cars (1.2%), heavy/light motor trucks,
  tools
  - Price drops: communication equipment, construction
  machinery/equipment

Intermediate goods

The producer price index for intermediate materials,
supplies, and components followed a 0.2% rise in December with an additional
0.7% gain in January. Prices for intermediate energy goods continued to rise
(3.1%), including the highest price increase for commercial electric power since
1980 (3.9%) and record-setting jumps for the commercial natural gas index and
the natural gas to electric utilities index. January index results for
construction and manufacturing materials are as follows:

• Durable manufacturing materials: down 0.7% (up 0.2%
  in December)
  - rising prices: hardwood lumber, prepared paint, primary
  aluminum
  - falling prices: steel mill products (1.7%), aluminum mill shapes,
  softwood plywood, copper and brass mill shapes
  
  
• Nondurable manufacturing materials: up 1.1% (down
  0.1% in December)
  - rising prices: plastic resins/materials, organic
  chemicals, paper
  - falling prices: finished fabrics, synthetic
  fiber
  
  
• Construction materials/components: down 0.3% (up
  0.1% in December)
  - rising prices: millwork, heating equipment, fabricated
  ferrous wire 
  - falling prices: softwood lumber, asphalt coatings,
  fabricated structural metal products, plywood, gypsum products, nonferrous
  wire/cable

Crude goods

The Index for Crude Materials for Further Processing
advanced 13.9% in January, the largest increase since August 1983; the index for
industrial materials also rose.

Net Output of Total Domestic
Manufacturing

The Index for Net Output of Total Domestic
Manufacturing Industries rose 0.2% in January, after 0.4% drop the previous
month. The index stood at 134.7 (December 1984 = 100), increasing 3.0% over the
last 12 months.

Some changes for the net output of major industry
groups are listed below.

The February 2001 Producer Price Index report will be
released on March 16, 2001.

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