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.

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.







































Industry%
change, Dec to Jan
Petroleum
refinery
-
1.7
Food0.4
Chemicals0.9
Paper0.3
Rubber and
plastics
1.0
Primary
metal
-
0.6
Fabricated
metal
0.1
Industrial
machinery
no
change
Electronic/electrical
equipment
no
change
Transportation
equipment
0.2
Instruments0.4

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


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